Employment Allowance – Clarification of State aid sector identification when claiming the EA for 2020/21

By Technical Team on 29 Apr 2020

HMRC has provided us with the following information when making a claim for the Employment Allowance for the 2020/21 tax year through the Employer Payment Summary (EPS) and which business sector to select to confirm eligibility under State aid rules.

Potential errors choosing the correct Business Sector when claiming Employment Allowance (EA) for 2020/21 Tax Year   

We are really pleased to see employers are starting to claim Employment Allowance for 2020/21 under the new rules.   

However, some early checks suggest that a number of employers, or their agents/payroll administrators, may be incorrectly selecting ‘State Aid rules do not apply’ on their Employer Payment Summary (EPS).  Information has been added into the Employer Bulletin to help explain when a business sector should be chosen or when to select 'State aid rules don't apply'.  

What you can do to help:

There may be different reasons for this error, however we’d be grateful if you could help to get it right, by directing to the Employer Bulletin. If an EPS has already been submitted showing the wrong details, this can be corrected by sending another EPS.     

Note: Once employment allowance (EA) has been claimed, it will automatically be set against the employer’s ER NICs Bill. As set out in the guidance on the Coronavirus Job Retention Scheme, in calculating the total employer National Insurance contributions paid in any pay period, the employer should subtract any Employment Allowance used in that pay period. If the employer has not, or does not expect to pay any employer National Insurance contributions in a pay period as a result of the Employment Allowance, they should not claim any employer National Insurance contributions costs for furloughed employees in that pay period. As set out in the EA guidance, a business can claim up to 4 years after the relevant tax year and still receive the benefit of this. More information can be found here.

NB. When claiming the Employment Allowance from April 2020, an employer must provide their business sector on the EPS if their business is undertaking ‘economic activity’. The business sectors are:

  • Agriculture
  • Aquaculture & Fisheries
  • Road Freight Transport
  • Industrial/Other for everything else – This sector should be selected if the business is undertaking economic activity and is not within 1-3 above

Only choose ‘State aid rules do not apply’ on the EPS when the business does not undertake any economic activity.