Commentary on Sections Section 2: Exceptions
40.Section 2 sets out when a person cannot qualify for the employment allowance and the liabilities to pay secondary Class 1 contributions that are to be excluded for the purposes of the allowance.
41.Subsection (1) provides that public sector employers (e.g. Government departments, local authorities and the National Health Service) cannot claim the employment allowance unless that employer has charitable status.
42.Subsection (2) defines "charity" as having the same meaning as given by section 18(1) of the Small Charitable Donations Act 2012; and defines "public authority" as including any person whose activities wholly or mainly involve the performance of functions (whether or not in the UK) which are of a public nature.
43.Subsection (3) excludes secondary Class 1 contributions liabilities incurred in connection with personal, family or household affairs from the employment allowance – that is a person who employs personal or domestic staff at home such as nannies, cooks, gardeners and care support workers.
44.Under certain circumstances, the NICs anti-avoidance and intermediaries legislation under section 4A SSCBA 1992 and section 4A SSCB(NI)A 1992 concerning personal service companies (commonly known as "IR35") and managed service companies imposes a NICs liability on deemed payments of employment income. Subsection (4) provides that the employment allowance is not available against the secondary Class 1 NICs arising on those deemed payments.
45.Subsection (5) provides that subsection (6) applies if a business, or part of a business, is transferred to a person ("P") in a tax year.
46.Subsection (6) provides that liabilities are excluded liabilities if they are incurred by "P" in the tax year, in respect of an employed earner who is employed (wholly or partly) for purposes connected to the transferred business.
47.Subsection (7) provides that a business, or part of a business, is transferred to “P” for the purposes of subsection (5) if in the tax year another person “Q” is carrying on the business or part of the business and in consequence of arrangements involving “P” and “Q”, “P” begins to carry on the business or part of it on, or following, “Q” ceasing to do so.
48.Subsection (8) then defines the term "arrangements" in a non-exhaustive manner to include “any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).”
49.Subsection (9) defines "business" for the purposes of subsections (5) to (7) to include a trade, profession or vocation; a property business; any charitable or not for profit undertaking or any similar undertaking or functions of a public nature.
50.Subsection (10) provides that the employment allowance will not be available if a person qualifies for an employment allowance as a result of avoidance arrangements.
51.Subsection (11) counters any attempt to forestall an employee’s earnings in order to maximise the employer’s employment allowance, either by deferring payment of those earnings from an earlier tax year to a later tax year or by bringing them forward from a later tax year to an earlier tax year.
52.Subsection (12) defines the term "avoidance arrangements" in subsections (10) and (11) by reference to the purpose for which the arrangements were made, namely where the main purpose, or one of the main purposes, was to secure entitlement to the employment allowance.
53.Subsection (13) then defines the term “arrangements” in a non-exhaustive manner to include “any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).”