The employment allowance increased on 6 April 2016 from £2,000 to £3,000 per employer per year, which is great news for small businesses who can set the allowance against employer’s class 1 NIC payable on their employees’ and directors’ pay.
The bad news is that the employment allowance is no longer available to companies where the only employee is a director of that company. This restriction does not apply if such a company decides to employ a member of the family, even if for only a few hours a week. This breaks the “one employee” condition. The second employee does not have to be a director of the company.
The employment allowance regulations do not mention a minimum employment period for the second employee, or a minimum level of income. HMRC guidance for one-person companies specifies that the second employee must be paid above the NIC secondary threshold (£156 per week for 2016/17).
However, this is not what the law says. As the law currently stands you can continue to qualify for the employment allowance if your company has two or more employed earners for at least one period in the year (which may be as short as a week).
If you need further advice on this or any other tax matter please contact Mark Wildi on 01689 877081.
