Employment allowance updates in 2016-17

In April 2014 we saw the introduction of the Employment Allowance.  This was an allowance of up to £2,000 against any Employer's NI (National Insurance) charged to a business.  And it was applied on a 'first come, first served' basis ie it reduced the Employer's NI charge each month to nil until the allowance was used up.

The purpose of this allowance was to encourage employment - but when it was first introduced all employers were allowed to claim the allowance - even single director companies.

Well this year HMRC have seen the error of their ways - as letting single director companies claim this allowance is hardly 'encouraging employment'.  So from April 2016, whilst the allowance has been increased to £3,000, there have been some restrictions on who can claim the allowance - most notably withdrawing the allowance from single director companies.

This isn't a major problem for small limited companies who are following a policy of low salary, high dividend (see more about this here).

However if the single director is taking a salary at a level where Employer's NI is charged, then this has obviously hit them quite hard.

One of the strategies to avoid losing this allowance is for the company to put the director's spouse on the payroll.  This means the company no longer runs a 'single director payroll'.  As long as both directors are paid above the Secondary NI threshold (£8112 for 2016/17) then per HMRC guidance this is allowable.

If you do decide to adopt this strategy we would suggest you at least make sure that the salary you are paying your spouse is commensurate with any work they do in the business - this may at least give you some recourse to arguing against HMRC should the need arise.

And if you have any questions, or would like any help on any other topics, feel free to email me at r[email protected].

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