The regulations now mean that limited companies where the director is the only employee paid above the Secondary Threshold for Class 1 National insurance contributions will no longer be entitled to claim Employment Allowance.
As the Secondary Threshold is set at £156 per week for the 2016-2017 this means that you will have to earn over £40,000 to no longer be eligible to claim Employment Allowance.
Therefore, even if your business has several employees at least one of them must also be paid above the threshold for your company to be able to continue to claim allowance.
However, this change does only apply to limited companies therefore if you are self-employed you will not be affected by these changes.
What should I do if I am no longer eligible?
If the changes in regulation have affected your business the first thing that you need to do is stop your Employment Allowance claim.
If Employment Allowance is claimed and the company is no eligible you may end up creating a huge debt to HMRC so, if you are unsure whether you are now unable to make this claim, we would recommend seeking professional advice from your accountant before taking any action.
However, if you are positive that you are no longer eligible you should make changes within the payroll software and alert HMRC.
If your business uses payroll software select the ‘no’ option in the employment allowance indicator field and submit an Employment Payment Summary (EPS) to HMRC. You must ensure that the full amount has been paid in Class 1 National Insurance Contributions (NICs) without deducting the Employment Allowance.
Don’t worry, these changes will not affect any Employment Allowance claims the company has made in the past, just any claims that your business makes moving forward.
What if my company circumstances change?
If your company circumstances change and another employee or director at your company is paid over the Class 1 National Insurance Threshold you will now be eligible for Employers Allowance for the whole year.
This includes companies that:
- Only have one UK based employee who earns above the Class 1 National Insurance Threshold
- All directors of the company are the only employees and earn above the required amount
- Employ seasonal workers where one or more is an employee who is earning more than the Class 1 Threshold
- Employ a husband and wife who are directors and both earn above the Class 1 National Insurance Threshold
If you think that you may now be eligible to claim Employers Allowance, it is advisable to seek advice from your accountant before making a claim.
Unsure whether these changes affect your business?
We understand that these changes can be a little confusing, making business owners unsure whether they are eligible to Employers Allowance. If this is how you feel please do not hesitate to contact K A Farr and a member of our team will be more than happy to provide our guidance.
Call us on 01704 211434 or email firstname.lastname@example.org and a member of our team will be in touch.