Jen’s take on the recent changes to Employment Allowance, Grants and R&D tax relief

Jen Badger, our Operations Director, is a go-to member of the WhisperClaims team for R&D tax relief knowledge and updates to the scheme. A recent announcement about changes to Employment allowance got us scratching our heads so we sent Jen out to investigate.

So what changes can we expect to see?

Employment allowance was introduced in 2014 as an incentive to employers to hire staff, and consists of £3000 to offset against Class 1 secondary NICs (National Insurance Contributions). Although it was successful, the flat rate nature of the allowance meant that it was unattractive to larger employers. This has led to the Government making changes to target the allowance at smaller employers.

From April 2020, EA will only be available to employers who paid less than £100,000 in employer’s NIC payments in the previous year, and will have to be applied for every year. So, far, so straightforward. However, there is a more significant change for small companies that have received grants, or who plan to claim R&D tax relief – EA is now a ‘de minimis’ state aid.

This small change could have a big impact on small companies. Under state aid rules, a company can only receive €200,000 of ‘de minimis’ aid over a rolling three year period, so any employer that has received ‘de minimis’ aid will have to make sure that claiming EA will not push them over this threshold, and may be prevented from applying for further funding on this basis.

What does this mean for R&D tax relief?

As for how this will affect claims for R&D tax relief, the current answer appears to be ‘who knows?’! We asked HMRC’s R&D tax team, and they told us that they haven’t be advised of any changes, and to continue to claim as usual. Employer’s NICs are an allowable cost in an R&D tax claim, but up until these changes the amount of EA received could not be included.

This seemed fair – the claimant company hadn’t actually spent this money, and it wouldn’t be shown as a revenue cost in the accounts.

However, now that this allowance is a ‘de minimis’ state aid, it will feature in the company accounts, and will affect, for example, the company’s ability to apply for further funding, we’d argue that it should be included in a claim for R&D tax relief as subsidised expenditure.

This would allow an SME to claim for up to an additional £3000 through the RDEC scheme, increasing their claim by £291. That might not seem much, but for many small companies, every little really does help!

Of course, this small increase in benefit is meaningless if it increases the time and effort involved in making a claim. Happily, at WhisperClaims we’re constantly checking for legislative changes that impact how R&D claims are made, and making sure that our system is up to date. This means our users will be able to seamlessly change the way they claim for NICs and employment allowance, enabling them to maximise their client’s claim with the minimum of effort.

You might also like

Banner image for our "Building an in house R&D Tax Service" Webinar

Learn how to deliver a cost-effective, systematic and HMRC-friendly R&D tax service

Partners in the firms we talk to are generally looking to develop their practice through two primary means: Delivering new services to existing clients Winning new business Most users have either previously dabbled in...

Header Image for the Government Roadmap Article

WhisperClaims’ take on the R&D Government Roadmap

Back in July this year, the Government published their long-term objectives for R&D, and gosh were they sweeping. Its stated aims are for the UK to be a ‘science superpower’, ‘to build the industries...

Food & Drink Banner

Identifying eligible clients in Food & Drink

Something we hear time and again from our clients is that they struggle to identify clients in their client base who would be eligible to claim R&D tax relief. So, in a new blog...

Book a demo & get a guided tour of WhisperClaims

Book now

We use cookies to give you the best online experience. By using our website you agree to our use of cookies in accordance with our privacy policy.