Employment Allowance and Furlough Pay

Employment Allowance for Furloughed Workers

You cannot claim Employment Allowance against furloughed workers, and this is for the whole of the tax year.  We have a suspicion that HMRC will apply this retrospectively for claims in the previous tax year as well, and their guidance clearly warns against fraudulent claims.

If your company is eligible for Employment Allowance you must either deduct the Allowance from the National Insurance Contributions claimed for furlough, or the NICs claimed from the Employment Allowance.  You cannot claim NICs for furloughed workers in the first part of the tax year, and then apply the Employment Allowance later.

We know this is tripping people up and it is not straightforward.  There is HMRC guidance to follow but the principle is that you cannot receive relief for the same NIC twice, and HMRC will apply the Employment Allowance to furloughed workers first.

If you have over- or under-claimed there is now the ability to submit corrections.  These are easier to correct with a subsequent claim, but you can also contact HMRC directly.

Example

Claimed £1500 of employers NICs for furloughed worker, then the amount of Employment Allowance is:

4 000 – 1 500 = £2 500

It is probably simpler to not claim the £1500 on the furloughed workers in the first place, as current guidance is to contact HMRC where you will be claiming less than the full £4000.  We recommend not claiming the first £4000 of furlough employer’s NIC in each tax year.

Reassurance from HMRC

Some reassurance is given in this quote from the .gov website “We will not be actively looking for innocent errors in our compliance approach.” HMRC 19.8.2020

This also follows on from earlier statements saying measures will not be retrospectively applied when they have changed.  Which comes back to the requirement to keep good records.