Changes to the Employment Allowance

From 6 April 2016, the amount of the Employment Allowance increased from £2,000 to £3,000 per annum.

However, from the same date the Employment Allowance is no longer available to single director companies. In order to maintain eligibility to the allowance, there must have been at least one other employee in respect of whom the employer was a secondary contributor at some point in the year.

When the draft regulations were first issued, it was not clear whether that other employee actually needed to be paid above the secondary threshold (£156 per week for 2016/17) and therefore for Class 1 employers NIC to physically have to be paid. This was a query raised by the ATT Technical Team when we responded to the brief consultation earlier this year. The regulation has not been changed but HMRC have indicated in their published guidance that at least one other employee, besides the director, does needs to be paid above the secondary threshold.

If a company has two directors then entitlement to the allowance is maintained provided both of them are paid above the secondary threshold, and for directors the annual secondary threshold of £8,112 for 2016/17 (or pro-rata if the directorship began after the start of the tax year) would need to be applied to ensure the criteria is met.

If the single director is the only employee paid above the secondary threshold for part of the tax year, but there are other employees paid above the threshold for some part of the tax year then the full amount of the allowance will still be available

Read HMRC’s guidance in full here.