Employment Allowance

From April 2014, most businesses have been entitled to an annual ‘Employment Allowance’ of up to £2,000 to reduce their liability for Employers Class 1 NI, unless they have been carrying out more than 50% of their work in or for the public sector (time or turnover). Please note that supplying IT services for a government department or local council does not preclude a business from claiming the allowance.

The government announced an increase in the Employment Allowance to £3,000 a year from April 2016.

However, from April 2016, to ensure that the Employment Allowance is focused on businesses that support employment, companies where the director is the sole employee are no longer able to claim the Employment Allowance. Companies where there is more than one employee but the director is the only employee paid above the Secondary Threshold (£8424 per annum in 2018/19) will also not be able to claim.

However, if you pay an additional employee above the Secondary Threshold (£162 per week in 2018/19), irrespective of the amount the director is paid, OR both of two directors are paid above the annual secondary threshold (£8424 or pro rata if the directorship began after the start of the tax year) you can claim the Employment Allowance (as long as you are otherwise eligible). If your company has employees paid above the Secondary Threshold, but circumstances change during the tax year and the director becomes the only employee paid above the Secondary Threshold, you can still claim the Employment Allowance for the tax year but will not be able to continue the claim into the next tax year.

Further guidance can be found via this link: https://www.gov.uk/claim-employment-allowance

Please note that if you work under IR35 and take a salary (as opposed to a deemed payment), this will not preclude you from claiming. If you pay a director’s remuneration to a second director (as opposed to paying for employment duties) this does not make your company eligible for Auto Enrolment. However, if you pay a salary to an employee who is not a director your company will have Auto Enrolment duties. Therefore it is worth considering making a spouse a director rather than paying them as an employee only. This may also be advantageous if they are paid irregular amounts throughout the year and, if they are a shareholder too, could help cement their entitlement to Entrepreneurs’ Relief on closure of the company.

If you are unsure at this stage whether you will be eligible i.e. you may take a contract during the year which means you are no longer eligible or you are unsure of the salary levels you will be paying employees, you can wait until the end of the 2018/19 tax year and we can then claim the Allowance for you retrospectively and you will receive a direct refund from HMRC. If the Allowance is claimed incorrectly and the money has to be repaid to HMRC, we will make an additional charge of £100 + VAT to administer the process.

However, if you are sure you will meet the criteria to claim the Employment Allowance in 2018/19 we will claim it for you straightaway. In this case processing of your salary will not change and the details of your salary payment will be submitted to HMRC in the usual way, showing the Employer’s NI that is due. However, rather than Competex paying the Employer’s NI to HMRC, it will be refunded to your company account on the 19th of the following month.

Please advise if you would like to claim the Employment Allowance for 2018/19. Our administration charge for processing your claim is £100 + VAT.

Should you have any doubt at all regarding your eligibility, we would advise that you speak to HMRC directly on 0300 200 3200.