Problems with HMRC’s NI system are impacting employers who are receiving incorrect demands. What’s the issue and how should you respond if you receive a bill from HMRC?
EA problem factors. Changes to the employment allowance (EA) rules and other factors seem to have caused problems with claims. Not only was the EA increased to £4,000 in April 2020, changes were made to the conditions which must be met for employers to qualify and claim it. What’s more some employers were better off delaying their claim for the EA because of Coronavirus Job Retention Scheme (CJRS) payments.
Delayed EA claims. Until 31 July employers receiving CJRS payments received a credit for the corresponding employers’ NI liability that would otherwise arise when they paid their furloughed employees. However, if the employer claimed the EA it would reduce its employers’ NI in preference to the CJRS NI credit, meaning it would be using the EA to cover a liability that it wouldn’t have to pay anyway. This generally only affected employers with a few employees on their books of which at least one was furlouged. Many such employers delayed their EA claims and now find themselves with unexpected demands from HMRC.
Software issues. Whilst HMRC has confirmed that it was perfectly OK to defer EA claims, some payroll software, including its own “Basic PAYE tools”, was unable to cope. HMRC’s internal systems also struggled, hence the flurry of incorrect demands. Some employers have received letters or phone calls from HMRC wrongly accusing them of deliberately underpaying their PAYE tax and NI for April to June. Tip. If you’re receiving incorrect demands because of the situation described above, don’t panic. HMRC is working on a solution. As long as you can show that your calculations of PAYE tax and NI are correct it will not pursue payment of the demands.
Changes to the employment allowance and how it interacts with the Coronavirus Job Retention Scheme have caused HMRC’s system to incorrectly show underpayments of PAYE and NI. HMRC is working on a solution but until then don’t pay any incorrect demands.