As ever, a new tax year comes with new tax changes and this year there seem to be a few. The Employment Allowance is the latest thing to change and it will have some effect on most contractors.
The Employment Allowance was introduced from the 2014/15 tax year and allows employers to claim up to £2,000 per year against their Employer’s National Insurance contributions. The Government introduced the measure to encourage employment and small business growth and as a result this has wiped out the need to pay Employer’s NI for a lot of small businesses.
Whilst most businesses could benefit there are some restrictions, particularly if the employer is a public body or earns over 50% of their income via the public sector.
Employer’s NI is payable on salaries over £8,112, at a rate of 13.8%.
For most the Employment Allowance is increasing to £3,000/year from 6th April 2016. However, as well as the original restrictions remaining in place a new exclusion has been introduced. Companies with only directors as employees (particularly single person limited companies or PSCs) will no longer be able to claim the Employment Allowance from the 2016/17 tax year.
From 6th April, if you have only directors employed by the company then you’ll have an additional cost of Employer’s NI on any salary over £8,060 – you may want to look at your salary level.
If you have employees that aren’t directors then you can continue claiming the Employment Allowance as before, as long as you meet all the other requirements.
If you’re the former, you could look at taking on an employee.
There are no pitfalls to claiming the Employment Allowance itself - we do this for you through the payroll software we use (if you’ve instructed us to claim it).
If you do have employees you must check that you’re paying them at least the National Minimum Wage (NMW), though if they’re over 25 you’ll have to comply with the new National Living Wage (NLW) from 6th April 2016. You can read more about this here: New National Living Wage
You should also have employer’s liability insurance in place, contracts of employment and be aware of Health and Safety Regulations among other employer requirements.
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