Employment allowance for national insurance purposes

From 6 April 2016, the Employment Allowance for National Insurance increases from £2,000 to £3,000. This allowance helps businesses by reducing their Employer’s National Insurance Contributions (NICs), making payroll more affordable.

The allowance is automatically applied as a deduction against an employer’s NIC bill, making it an effective way to lower employment costs. However, there’s a key change that businesses need to be aware of.

The Snag: Single-Director Companies Lose Eligibility

While the increase in the Employment Allowance for National Insurance is great news for many businesses, there is an important restriction. From 6 April 2016, companies where the only salary is paid to a single director will no longer qualify for the allowance.

This means:

  • If a sole director is the only employee on payroll, the company cannot claim the £3,000 deduction.
  • The allowance is still available if the business has at least one other employee earning above the secondary NIC threshold.

How to Retain the Employment Allowance

If your business is at risk of losing the Employment Allowance for National Insurance, one potential solution is to employ another family member.

To ensure compliance with HMRC rules:

  • The salary must be genuinely justified as an allowable business expense.
  • The individual must perform legitimate work for the company.

This strategy can help the business retain the £3,000 allowance, while also providing a salary for a family member.

How We Can Help

At Lewis Brownlee, we provide expert guidance on Employment Allowance for National Insurance, ensuring businesses maximise tax relief while staying compliant. Our services include:

  • Assessing eligibility for the £3,000 allowance.
  • Tax-efficient payroll planning for directors and family businesses.
  • Ensuring compliance with HMRC regulations.

If you need advice on Employment Allowance for National Insurance, contact us via our contact page for expert support.

Don’t miss out on valuable tax savings—speak to our team today!