Employment Allowance was launched on 06th April 2014. The idea of Employment Allowance is to support small businesses by giving relief on Employers Class 1 National Insurance Contributions up to £2000.00 in the 2014/15 tax year. The allowance has increased to £3000.00 for 2016/17 however, there are changes to the guidance around Employment Allowance. The two main points are:
- If the only employee of the company is a Director and their wages are paid above the secondary threshold for Class 1 NI Contributions (£156.00 per week for 2016/17) the company will no longer be eligible to claim employment allowance
- If the company employs a number of people, one of which is a Director, and the director is the only employee to be paid above the secondary threshold for Class 1 NI Contributions the company will no longer be eligible to claim Employment Allowance
If the circumstances of the company change within 2016/17 where more than 1 employee or Director is paid above the secondary threshold, then the company will be able to claim Employment Allowance for the full year. Examples of this are:
- All employees are Directors and are paid above the secondary threshold for Class 1 NI
- The Directors employed by the company are husband and wife and are both paid above the secondary threshold
- Seasonal employees are employed and are paid above the secondary threshold for one working week
- If the employee is the only UK based employee of an international company, with their wages being above the secondary threshold. There are other eligibility criteria in this circumstance.
The eligibility to claim Employment Allowance in 2016/17 is determined by whether the wages of additional employees are above the secondary threshold or if the Directors are paid above the annual secondary threshold of £8,112.00 (or on a pro-rata basis if their directorship began after the start of the financial year)
If you are not entitled to claim Employment allowance it must not be claimed and full Class 1 Employers NI must be paid to HMRC
Further information relating to Employers Allowance for 2016/17 can be found at the Gov.uk website here:
