Currently, the vast majority of businesses who have employees can claim the Employment Allowance. The allowance allows employers to reduce their total Class 1 Employer’s National Insurance bill by up to £2,000 a year.
The main changes which will take affect from April 2016 are as follows:
The Good News: Employment Allowance Amount
From April 2016, the amount which each employer can reduce their Class 1 Employer’s National Insurance bill will increase by £1,000 to a total of £3,000. Although, as before, a business cannot claim a higher value of Employment Allowance than has actually been charged in Class 1 Employer’s National Insurance.
The Bad News: Single Director Businesses
From April 2016, where a business has only one employee who is also a Director, the Employment Allowance will no longer be available. It is estimated that this change will adversely affect thousands of owner managed businesses throughout the United Kingdom.
In such a situation, only if the business legitimately takes on another employee will the Employment Allowance being available to offset against the Class 1 Employer’s National Insurance bill for both employees.
How we help our clients
This month, e-ccountant will be sending out personalised guidance to all clients who have taken out our payroll service. Firstly, we will identify how the changes to the Employment Allowance will affect our client’s business (if at all). Secondly, we will look at potential options in order for the Director’s pay to stay as tax efficient as possible within that particular business.