Employment Allowance 2016

The Government announced in the Autumn Statement plans to increase the National Insurance contributions (NICs) employment allowance 2016 from £2,000 to £3,000 a year from April.

For companies where the director is the sole employee this allowance is now being restricted. From April 2016 sole director companies where the director is the only employee will no longer be able to claim the allowance.

This is to ensure that the NICs employment allowance is focussed on businesses and charities that support employment.

This measure is designed to help all businesses and charities, particularly smaller ones, with additional wage costs.

HM Treasury estimates that 90,000 employers will see their employer NICs liability reduced to zero.

When introduced in 2014, the employment allowance offset the NICs costs of employing four workers full time on the national minimum wage.  The increase in the employment allowance will mean firms will be able to continue to employ four workers full time on the new national living wage, without paying any NICs.

One arrangement HMRC have objected to is a payroll company taking on a business’ staff and setting up underlying companies. Each of the underlying companies employ a small number of the business’ staff with the intention of obtaining the full employment allowance for each underlying company.

This would in theory wipe out the employer NICs liability.

HMRC’s view is that attempted avoidance schemes such as this, which seek to use artificial and contrived arrangements to seek an unintended advantage, do not work and will be challenged.

Further details on the employment allowance 2016 can be found here.

Employment allowance 2016 – Highland Payroll Services