In the 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.’

HMRC has now opened a consultation on the draft regulations proposed to restrict access to the employment allowance, which was introduced in 2014 to provide the majority of UK businesses a reduction on their National Insurance Contributions of up to £3,000 per year. Restrictions will apply to companies who have received civil penalties for employing migrants without a right to work in the UK. The maximum fine can be up to £20,000 per illegal worker and to provide an indication of the prevalence of these civil penalties, in the second half of 2015 the Home Office issued 1,217 penalties valued at £21,587,000.

Once an employer has either decided not to appeal or has exhausted their appeal rights, under the proposal, in the following tax year the employer will not be eligible to claim the employment allowance. As a consequence, any applicable business will have to amend their payroll software to ensure that they do not claim the allowance during that year. For example, an employer who is penalised by the Home Office in September 2017 for employing individuals subject to immigration control, and exhausts their appeals right by January 2018, will not be eligible to claim the Employment Allowance from April 2018.

HMRC estimates that the introduction of the proposed measure will affect around 2,000 employers, meaning that the Government expects to withhold a maximum of £6,000,000 from non-compliant businesses.

HMRC’s consultation asks for feedback on the draft regulations and the strengths and weaknesses of the proposed approach, which has been designed to avoid employers needing to pay back any employment allowance already claimed in the current year.

The consultation will run for 8 weeks commencing on 8 November 2016 and ending on 3 January 2017.