Restricting employment allowance for employers of ‘illegal workers’

Restricting employment allowance for employers

The Government have published a consultation on draft regulations that exclude employers who hire an ‘illegal worker’ from claiming the Employment Allowance.


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The Employment Allowance was introduced in April 2014 and allows businesses to claim a reduction of up to £3,000 a year on their employers’ NICs. At Budget 2016 the Chancellor announced that “Employers who hire an illegal worker face civil penalties from the Home Office. The Government will build on this deterrent by removing a year’s Employment Allowance from those receiving civil penalties, starting in 2018.” Following this announcement, on 8 November 2016 the Government published a consultation document on draft regulations that will exclude employers who hire an ‘illegal worker’ from claiming the Employment Allowance.

The consultation document proposes draft regulations that will exclude employers from claiming the £3,000 annual Employment Allowance for one year where:

  • The employer employed individuals subject to immigration control; 
  • The employer has been penalised by the Home Office; and
  • All appeal rights against that penalty have been exhausted.

The key points to note are as follows:

  • As well as the employer being excluded from claiming the Employment Allowance, a ‘connected person’ is not entitled to claim the allowance. Two companies are connected with one another if one of the two has control of the other, or both are under the control of the same person; and
  • All methods of appealing the penalty from the Home Office must be exhausted for the restriction on the Employment Allowance to apply. 

This consultation does highlight the importance of getting the on-boarding process correct for new hires. In order to avoid unnecessary fines, employers must ensure all employees have the right to work in the UK. KPMG’s Right to Work application is a user friendly tool that allows employers to carry out all necessary checks in a quick and efficient manner via an iOS or Android smartphone or tablet. If you have any queries on this, or want more information on how the app works then please get in touch with your usual KPMG contact.


For further information please contact :

Patrick Martin

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