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Employer's Allowance 2016/17

From 6 April 2016 the Employer's Allowance increases to £3,000 per annum but is not available to sole director companies without any other staff.  If the sole director puts their spouse on the payroll for a nominal salary, say £10 per month, can the £3,000 Employer Allowance be claimed or does anybody know if there are anti-avoidance rules against this sort of scenario?

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19th Feb 2016 21:57

Pushing your luck

I'd say that was pushing your luck.

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20th Feb 2016 06:31

Employer Allowance Follow Up

Maybe, but is there anything in the legislation preventing it please?

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19th Feb 2016 23:31

Perfectly fine
According to CIOT guideance that is perfectly fine.

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20th Feb 2016 09:37

Reason

The reason I said it's pushing your luck is that the £10 a month immediately makes it look like a sham.

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20th Feb 2016 10:44

Sham?

Possibly, but I'd suggest many spouses do some work in the company whether it be paying into the bank, bookkeeping, taking messages, dropping records off, sending emails etc etc.

If the wife has other income that uses up their personal allowance then there has, until now, usually never been any point in paying a wage for this work.

With the changes in the Employers Allowance and dividend tax rules, there may well be a few hundred quid's worth of reasons to pay the spouse for the work they do.

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21st Feb 2016 09:47

Sham

stephenkendrew wrote:

Possibly, but I'd suggest many spouses do some work in the company whether it be paying into the bank, bookkeeping, taking messages, dropping records off, sending emails etc etc.

If the wife has other income that uses up their personal allowance then there has, until now, usually never been any point in paying a wage for this work.

With the changes in the Employers Allowance and dividend tax rules, there may well be a few hundred quid's worth of reasons to pay the spouse for the work they do.

This isn't a few hundred quid, though.  It's a tenner a month.

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20th Feb 2016 13:04

Wife has to earn at the secondary threshold

See the legislation below - 

Amendment to the National Insurance Contributions Act 2014

2.  In section 2 of the National Insurance Contributions Act 2014 (exceptions), after subsection (4) insert—

“Excluded companies

(4A) A body corporate (“C”) cannot qualify for an employment allowance for a tax year if—

(a)all the payments of earnings in relation to which C is the secondary contributor in that year are paid to, or for the benefit of, the same employed earner, and

(b)when each of those payments is made, that employed earner is a director of C.”.

 

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By PCBACFV
20th Feb 2016 16:08

Infrequent payments

Thank you for the legislation update, but I am not sure whether this takes us much further with the low earning (? spouse) second employee.  

It does however make clear that a casual employee (say on a holiday job) would only trigger an employment allowance on the Employer's NI paid on the payroll(s) during which that casual employee was being paid.

I understand under the NI legislation "secondary contributor" means either the employer or the person who pays the national insurance on behalf of the employer (e.g. in the case of agency or temporary workers).  As the legislation above states "all the earnings" {and not "all the secondary contributions"], I think you could have "earnings" below the LEL to still be regarded as a secondary contributor in respect of that employment - it is just that the "contribution" paid is nil.

I would assume that "or for the benefit of" is dealing with the situation where the earnings arising from the office/employment are paid to someone else (e.g. a school) but would also cover the situation where the director/employee had their salary paid into their spouse's (or indeed anyone else's) bank account. If the second employee (assumed to be the wife for the purpose of this thread) is a genuine employee working in the company [and at or above the living wage threshold] then the payments to that person would not normally be regarded as being for the benefit of he director.

Similarly, it appears that sub-clause (b) means that if the sole earner was not a director at the time the payment was made then the employment allowance may be claimed (and is not recovered if he subsequently becomes a director).

Even if the legislation did mean you had to reach the earnings threshold for the second employee, the earnings threshold is calculated on an annual or weekly basis so if payments are made annually or quarterly (except in the case of a Director), NI will be triggered at a much lower salary ad could be offset against the Employment Allowance.  This might give particular advantage if for example the part-time/occasional worker was above state pension age and hence was not paying primary National Insurance contributions.

Also if there was a casual employee on one payroll, you could only pay the Director on those payrolls the casual employee was paid e.g. pay their full annual salary as a lump sum and then remain unpaid for the remainder of the year.  (Directors' NI is calculated on an annual basis to ensure they do not use the weekly/monthly basis of calculation to avoid NI, so this possibility is already foreseen in legislation).

To me it still seems too open to abuse to remain unaltered for very long!

 

 

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By hje
21st Feb 2016 11:21

It's

called Employment Allowance - the intention is that those in receipt of EA continue to meet the objective of supporting employment.

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21st Feb 2016 11:26

Rules

hje wrote:

called Employment Allowance - the intention is that those in receipt of EA continue to meet the objective of supporting employment.

And they could have done a better job of making up the rules.

The quality of draftsmanship skills is very low these days.

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21st Feb 2016 19:45

Not sure the Government's intention is relevant?

hje wrote:

called Employment Allowance - the intention is that those in receipt of EA continue to meet the objective of supporting employment.

We are paid to obtain the best financial result for our clients ....within the law....are we not?

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22nd Feb 2016 08:39

Relevant?

http://www.legislation.gov.uk/ukpga/2014/7/section/2/enacted

(10) A person cannot qualify for an employment allowance for a tax year if, apart from this subsection, the person would qualify in consequence of avoidance arrangements. 

(13) In subsections (10) and (11) "avoidance arrangements" means arrangements the main purpose, or one of the main purposes, of which is to secure that a person benefits, or benefits further, from the application of the employment allowance provisions. 

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22nd Feb 2016 09:42

Relevant Follow Up

Thank craig_2k4, but what is the definition of "a person benefits or benefits further"?  It is still unclear to me where the line is drawn. Can you give a specific example of this that would cause those provisions to kick in?  Thank you.

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22nd Feb 2016 09:59

Not my area...

To be honest.

I haven't seen this tested. It's just legislation I've seen quoted regarding this area. There is a thread on here about it but I can't find it now. I'll have another search.

Sorry, I can't be of more help!

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22nd Feb 2016 14:04

Employment Allowance rules penalising genuine small employers?

I've just been looking into the rules for a client who is currently a single director company.  He is looking into taking on an employee (a genuine one- not a family member) but as he has never employed before wanted to know what happens if he employs them and claims the allowance and then they leave. 

Under the current rules for Employment Allowance if you are no longer eligible to claim the Employment Allowance, which he wouldn't be if his employee left/was laid off (because he'd return to being a single director company) he would have to send in an EPS to advise HMRC.  At this point he will have 'stopped' his claim, currently this means that no allowance is due for that year and therefore the employer must repay the NICs which were previously covered by the allowance. 

Of course under the original rules it was unlikely that an employer would come in and out of eligibility several times in a year so that was fine. However under the new rules of eligibility, a single director company could easily take on and lose several employees in the year taking them in and out of eligibility and creating a nightmare for the payroll department or bureau and it's software. 

I'm calling HMRC this afternoon to see if there is likely to be any change to this rule, but I can't see it being likely, as otherwise you have the advantage for unscrupulous individuals who could take someone on for a month in the year just so they can claim the whole allowance on their director's salary. 

I'll update you with my findings.

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By cfield
25th Feb 2016 17:17

Unscrupulous?

payroll bureau wrote:

I'm calling HMRC this afternoon to see if there is likely to be any change to this rule, but I can't see it being likely, as otherwise you have the advantage for unscrupulous individuals who could take someone on for a month in the year just so they can claim the whole allowance on their director's salary. 

What's more unscrupulous? Dodging this rule with a 2nd employee or bringing in such an unfair rule in the first place!

Before anyone objects, it is unfair because a solo director has to pay employer NI even though he's not employing anyone other than himself. Another example of the Government having their cake and eating it.

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By Kazmc
22nd Feb 2016 15:14

@payroll bureau

would be very interested to hear what HMRC have to say about that.

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22nd Feb 2016 17:47

HMRC Guidance

Thanks @payroll bureau I've read the same thing but hoped as the HMRC guidance was issued 06/02/14 there might be an update shortly. Await with interest the outcome of your call.

 

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24th Feb 2016 11:53

stopping Employment Allowance claim implications

Thanks Kazmc and jjswjjsw.  I'm afraid the answer isn't very satisfying but all we're going to get at the moment.  HMRC are still trying to work on a resolution to this problem as they are aware of the problem created by the single director rule, but at present the existing guidelines stand.  They are hoping to have new guidelines on this before the 6th April 2016.  It seems that the government have landed HMRC in something of a hole here as if they don't reclaim the Employment Allowance if the claim is stopped then there is little to stop all the Employment Allowance being claimed while there is an additional employee, and if they do reclaim it they create an administration nightmare and rather an unfair position for the smallest employers trying to get onto the employment ladder.

I will be keeping an anxious eye out for new guidelines, lets hope they are out before the 6th April!

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24th Feb 2016 12:32

Presumably

FA 2016 when it comes into being will clarify any anti-avoidance rules?

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By PCBACFV
25th Feb 2016 14:15

Presumably Not!

The 2016 FA most likely will not contain any anti-avoidance provisions relating to the Employment Allowance as the allowance is created by the National Insurance Contributions Act.  Therefore the anti-avoidance provisions are likely to be solely those reproduced by Craig_2K4 above.

My own thoughts are that where the arrangement with a low paid second worker could be demonstrated to be a genuine employment arrangement then there would be no issue.  I think this could be best satisfied where the payments have been on-going for sometime before the Employment Allowance issue arose or where there clearly has been  change in the circumstances of the business where it was likely that additional resources (albeit part-time) were required (e.g. sole director employed on a contract away from home).  However we do have to watch the national living wage requirement .

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25th Feb 2016 14:51

Genuine ?

And there we return to that suggested tenner a month.  Less than 90 minutes work.

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