Local accountants and tax advisers, Trueman Brown, warn employers about the amendment to the employers allowance coming into force from 6th April 2016.
It was a classic case of giving away with one hand and taking back with the other!
In his July 2016 Budget, the Chancellor, George Osborne, announced changes to the employment allowance which reduces the cost of Class 1 National Insurance Contributions payable by an eligible employer in respect of its salaries paid to staff and directors.
CHANGES TO LEGISLATION
With the one hand he gave: from 6 April 2016 the allowance was increased from £2,000 to £3,000 per annum.
With the other hand he took back: an employer where the ONLY employee is also a director of the company was now deemed to be an ‘ineligible’ employer which could not claim the allowance.
CONFUSION OVER ELIGIBILITY
However, there has always been some confusion whether an employer which had two employees who were both directors of the company (such as the classic “Husband and Wife” company) would also be deemed ineligible to claim the allowance under the new regulations.
Accounting bodies have asked HMRC to clarify the new regulations on this point.
Finally, HMRC has issued a guidance document entitled “Single-Director Companies”. This new guidance states explicitly that an employer would be ineligible to claim the employer allowance if: –
- only one employee (or director) in the limited company is paid above the Secondary Threshold (2016/17: £8,060 per annum or £156 per week).
- that employee is a director of the limited company
This means that companies with several employees, where the director is the only employee paid above the Secondary Threshold, will no longer be eligible for the Employment Allowance.
BE CAREFUL!
The trouble is, that this definition has no basis in tax regulation!
There is no Minimum Wage condition contained within the Employer Allowance regulation (SI 2016/344) nor in the definition of a “Secondary Contributor (Employee)”.
It appears to this writer that HMRC are trying to coerce small, micro businesses into not claiming the allowance when they are eligible to.
The current wording of the regulations suggests that a single director company is an eligible employer if it employs two or more earners for at least one period in the year (which may be as short as a day or week).
Accounting bodies have asked HMRC to amend their guidance in line with the Regulations. So, watch this space!
Local accountants and tax advisers, Trueman Brown, specialise in dealing with small businesses. If you need advice, then please contact us below.