Employers need to estimate their total class 1 NIC liability for 2020/21 and in some cases correct coronavirus job retention scheme (CJRS) claims without delay.

Employers and payroll professionals have been grappling with the employment allowance dilemma since April 2020, when the CJRS for furloughed wages came into effect. There was confusion about whether employers should claim the employment allowance for 2020/21 as well as the employer’s NIC due on furlough pay under CJRS, and we are still waiting for concrete guidance from HMRC.

Help at hand

The ICAEW Tax Faculty stepped into that vacuum with advice to its members. There are three alternative actions to take, depending on the expected total secondary class 1 NIC liability for the whole tax year. The maximum employment allowance available to be set against employer’s NIC for 2020/21 is £4,000.

1. NIC is less than £4,000

The employer should claim the employment allowance for 2002/21, if it also meets the other conditions for the allowance.

Where the employer has claimed employer’s NIC under the CJRS, this claim should be amended to remove the employer’s NIC element. Where the CJRS claim did not include an amount for employer’s NIC, no action is required

The employer should claim the employment allowance for 2002/21, if it has not already done so.

The CJRS grant will have included a claim for employer’s NIC, but as the total secondary class 1 NIC for the whole year exceeds the sum of the NIC element of the CJRS claim and the NIC due outside of the CJRS claims, the employer has not overclaimed, considering the tax year as a whole.

3. NIC not covered by grant is less than £4,000

The employer needs to estimate how much of the employment allowance covers secondary class 1 NIC included within the CJRS claims, and then deduct this amount from either:

  • their CJRS claims; or
  • their 2020/21 claim for employment allowance.

The employment allowance claim can be reduced by contacting the HMRC employer helpline. The CJRS claim can be reduced as indicated below.

Correct the CJRS claim

Where the employer needs to adjust an earlier amount claimed under the CJRS as they have doubly-relieved part of their employers’ class 1 NIC, this can be done by amending the next CJRS claim. The final CJRS claim for October 2020 must be submitted by 30 November 2020.

Repay HMRC directly

If there are no further CJRS claims to submit the employer should contact HMRC to get a payment reference number. This can be done by webchat or telephone: 0800 024 1222. There is guidance on how to repay the excess grant electronically, but payment by cheque is not an option.

Once the employer has received the reference number from HMRC they should repay the overclaimed amount with 30 days.

HMRC has the power to raise an income tax assessment equivalent to the excess amount of the CJRS grant, if the employer does not voluntarily repay it. This assessment must be paid with 30 days of the date it is issued (see Factsheet CC/FS48). Strangely even if the employer is a company, the assessment will be for income tax not corporation tax.

Where HMRC does not raise an assessment and the employer later realises that they had overclaimed the CJRS grant, the employer can add the excess CJRS grant to the income tax they owe for 2020/21, or for a company – the next accounting period.

Penalty possibility

The deadline for notifying HMRC of an incorrect CJRS claim is 90 days after the grant was received, or for grants paid on or before 22 July 2020; 20 October 2020. If notification is not made within these periods HMRC can apply a failure to notify penalty.

However, HMRC confirmed in Factsheet CC/FS48 that it will not apply a penalty where the employer did not know that they had overclaimed the CJRS grant, in other words the CJRS calculation was wrong due to a genuine mistake.