Many accountants deal with companies that have single directors on the payroll and are paid at a rate above the Secondary Threshold for Class 1 National Insurance contributions. Due to a change in the legislation from 6th April 2016 unless the company has another employee who is also paid above the Secondary Threshold it will not meet the ‘additional employee test’ and as such won’t be eligible to claim the Employment Allowance which gives up to £3000 against their employers’ (secondary) Class 1 National Insurance contributions for the tax year.
A fact that does not appear to be widely recognised is that if the company has a change in circumstances and more than one employee or director earns above the Secondary Threshold then it will be eligible to claim Employment Allowance for the whole tax year (even if the change occurred in month 12). The result of this is that the Employment Allowance would be due for the whole tax year and set against contributions made when there was just the single director resulting in a refund.
Likewise, if the company’s circumstances change and the director becomes the only employee paid above the Secondary Threshold the company will continue to claim the Employment Allowance for the whole tax year up to 5th April. It will stop claiming in the following tax year unless another employee is paid above the Secondary Threshold and the ‘additional employee test’ is met again.
Julie Rose, Vantage Fee Protect Tax Consultant
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