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Employment Allowance Increase

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One piece of good news for businesses from the Autumn Statement was the increase in the Employment Allowance from £2,000 to £3,000 with effect from April 2016.

Most businesses that pay Class 1 National Insurance Contributions (NIC) on employees’ and directors’ earnings are currently eligible to claim the allowance – meaning that they don’t pay any employers’ NIC until their liability exceeds the allowance level; with claims being made via payroll software.

However, there is a sting in the tail; as announced in the Summer Budget, from April 2016 there are plans to restrict the allowance to exclude companies where the director is the sole employee. This will affect many ‘personal companies’, including new business start-ups who may currently not have any requirement for other employees.

The reason behind this change in the legislation, as detailed in HM Revenue & Customs’ consultation document, is for Employment Allowance ‘to continue to meet its objective of supporting employment’. HM Revenue & Customs indicate that the change in legislation will affect approximately 150,000 limited companies with a single director.

The consultation on the way in which the restriction will be introduced is currently in progress and runs until 3 January 2016. Whilst we have seen proposed changes in legislation being discarded after such consultations, including the proposal for a single inheritance tax nil rate band for trusts created by one settlor, this is a slightly different scenario since the current consultation is focused on the draft legislation to ensure that it ‘works’ to implement the change.

Any companies who may be caught by the new rules need to check that they have made any eligible claim for the Employment Allowance whilst they still qualify.

For further information please contact Carolyn Byrne on 01522 541181 or email