The purpose of the employment allowance is to the reduce the cost of the Class 1 NIC payable by the employer in respect of salaries of staff and directors.
The employment allowance was increased on 6 April 2016 from £2,000 to £3,000 per tax year which is great news for qualifying employers.
However, a separate regulation (SI 2016/344) applies from 6 April 2016 to exclude a company (C) from claiming the allowance:
“(a) all the payments of earnings in relation to which C is the secondary contributor in that year are paid to, or for the benefit of, the same employed earner, and
(b) when each of those payments is made, that employed earner is a director of C.”
The above is effectively translated to: Where the only person employed by the company is also a director of the company, that company can’t claim the employment allowance. That is the only condition stated in the regulation.
If the company employs two or more people at any point in the tax year the above condition becomes void and the company can claim the employment allowance. Similarly if the company only employs one person and they are not a director of the company the allowance can be claimed.
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This post was written by Daisy