The employment allowance was set at £2,000 for the first two years of its existence. For 2016/17, the allowance has been increased to £3,000.
So you can reduce the amount of your employer class 1 national insurance contributions (NICs) payable to HM Revenue & Customs (HMRC) by this amount throughout the year. The employment allowance is targeted at businesses that support employment, and has therefore never been available if you employ someone for personal, household or domestic work. What’s more, from 6 April this year, you no longer qualify if you are the director and only paid employee of your company.
This will not make too much difference if only a low level of remuneration is taken, with profits mainly withdrawn as dividends. However, the situation may be more serious for contractors who, regardless of whether or not the IR35 rules apply, often take a much higher level of remuneration. Just having employees or another director is, in itself, insufficient to continue qualifying for the allowance. You will only qualify if the respective earnings are sufficient that employer NICs are payable.
The full allowance of £3,000 will be available provided you qualify at some point during 2016/17. But a word of warning if you think that simply employing your spouse or partner for one week will suffice: you cannot qualify for the employment allowance as a consequence of avoidance arrangements. When it comes to the employment of a spouse, partner or family member, the employment needs to be genuine; in particular, HMRC is less likely to query long term arrangements.
Get in touch with us if you are uncertain about your status.