Employment allowance

Employment allowance

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By thomas34
06th Apr 2016 13:34

At Long Last

Well spotted.

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By cstwragby
06th Apr 2016 13:48

Well thanks HMRC for moving the goalposts one day into the new tax year when clients have already been advised on the retrospective rules.

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By Tim Vane
06th Apr 2016 13:57

Sorry, edited

EDITED - Actually, that's what we thought it would say isn't it?

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By Portia Nina Levin
06th Apr 2016 14:04

That is what I thought it would say. It just is not right, as I expected it to not be.

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By thomas
06th Apr 2016 14:07

Annoying though - its what they should have said at the beginning.  I've spent the last week talking to clients and advising where appropriate to employ someone. Looks like I have some phone calls to make

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By Tim Vane
06th Apr 2016 14:08

Agreed, it's not correct. It's just what we though it would say. The legislation does not require an actual secondary contribution, just a secondary contributor (i.e. the employer). So the stuff about the ST is nonsense.

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By mwngiol
06th Apr 2016 14:08

EA

Has there been a change in the legislation? Or is this just HMRC clarifying what they wish the legislation said?

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By Clearly Accounting
06th Apr 2016 14:34

The Government can't even agree with itself

I saw this webpage from the government earlier today. It disagrees with the link above: -

https://www.gov.uk/claim-employment-allowance

I am somewhat conflicted above the advice to give to clients.

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By Duggimon
06th Apr 2016 14:35

It's incorrect plain and simple and if HMRC think it's correct and try to act on it then they will lose because all that matters is what the legislation says.

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By Duggimon
06th Apr 2016 14:40

Amendment to employment allowance:

http://www.legislation.gov.uk/uksi/2016/344/regulation/2/made?view=plain

 

Definition of secondary contributor:

 

http://www.legislation.gov.uk/ukpga/1992/4/section/7/enacted

 

There is no ambuguity, the page on gov.uk is wrong. There is no requirement in the legislation that the second employee must be paid above the LEL.

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By cstwragby
06th Apr 2016 14:58

Are HMRC just making this up as they go along?

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By SteveHa
06th Apr 2016 14:59

Ambiguous legislation.

If a second employee is paid below the secondary threshold such that no secondary contributions are payable, can the employee actually be called a secondary contributor, having not contributed?

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Replying to DJKL:
By Duggimon
06th Apr 2016 15:07

Yes

SteLacca wrote:

If a second employee is paid below the secondary threshold such that no secondary contributions are payable, can the employee actually be called a secondary contributor, having not contributed?

 

For the purposes of this Act, the “secondary contributor” in relation to any payment of earnings to or for the benefit of an employed earner, is—

 

(a)in the case of an earner employed under a contract of service, his employer;

 

No requirement for secondary contributions to have been paid, simply that the company pays earnings to the employee.

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By Portia Nina Levin
06th Apr 2016 15:23

A point which is confirmed within the legislation giving the employment allowance.

NICA 2014, section 1(1) says:

"A person qualifies for an employment allowance for a tax year if, in the tax year—

(a)the person is the secondary contributor in relation to payments of earnings to, or for the benefit of, one or more employed earners, and

(b)in consequence, the person incurs liabilities to pay secondary Class 1 contributions,

under SSCBA 1992 or SSCB(NI)A 1992 (or both)."

Part (b) would be unnecessary is "the secondary contributor" was a person actually liable for a secondary contribution.

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By Bobz
06th Apr 2016 15:58

A work-around?

What's to stop an employer paying a reduced salary to the second employee (not the director) for a couple of months, and then paying the back pay along with usual pay in Month 3? That could take them above the secondary threshold in that month, and then the employer can continue to claim the Employment Allowance for the rest of the year...

Unless I am missing something obvious?

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By User deleted
06th Apr 2016 18:35

It is so petty ....

... as it was only worth around £235 saving!

No company sole director company would be paying £3000 in ERs NI.

It is a petty and vindictive change that has probably cost more to enact than will be saved.

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Replying to Wanderer:
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By Matrix
07th Apr 2016 05:58

Small saving eaten up by increased payroll fees

Old Greying Accountant wrote:

... as it was only worth around £235 saving!

No company sole director company would be paying £3000 in ERs NI.

It is a petty and vindictive change that has probably cost more to enact than will be saved.

And surely much of the saving would be spent on increased payroll fees or is everyone bearing the risk of going against the guidance for no fees?

If it was tax efficient and defendable to employ a spouse then this should have already been done, the new rules do not change this

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Replying to Albie:
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By Portia Nina Levin
07th Apr 2016 11:31

Incidentally

I agree with this comment entirely.

Matrix wrote:

If it was tax efficient and defendable to employ a spouse then this should have already been done, the new rules do not change this

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Replying to Albie:
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By User deleted
07th Apr 2016 15:00

Eh ...

Matrix wrote:

Old Greying Accountant wrote:

... as it was only worth around £235 saving!

No company sole director company would be paying £3000 in ERs NI.

It is a petty and vindictive change that has probably cost more to enact than will be saved.

And surely much of the saving would be spent on increased payroll fees or is everyone bearing the risk of going against the guidance for no fees?

If it was tax efficient and defendable to employ a spouse then this should have already been done, the new rules do not change this

... missed my point completely.

Old rules sole director could save £235 through efficient use of EA, now he needs an employee (above ST?). New rules are therefore a change to stop what was a minor advantage. If HMRC think they are going to get a boost of £3000 x S, where S is number of sole director/employee companies they are in for a shock!

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By User deleted
06th Apr 2016 18:50

oops ....

... got my threads tangled -:o)

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By Duncan Cameron
06th Apr 2016 18:56

NIC

To SteLacca:

As Dunggimon has said the “secondary contributor” is the employer. It is not a second employee.

To Bobz:

What you are missing:

1. The thrust of the comments disagreeing with HMRC guidance, viz: it does not matter if the only secondary contributions are all in respect of a single employee’s pay (who must be a director). What matters are that there are at least two paid paid employees. Of course, for at least one of them there must be some secondary NIC.

2. If 1) is wrong or if the law was changed to align with the guidance then you would have also missed s2(10) to (13) NICA 2014.

Please construe “employee(s)” to include directors and other office holders.

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Replying to ecirpdivad60:
By SteveHa
07th Apr 2016 09:22

Typo

Duncan Cameron wrote:

To SteLacca:

As Dunggimon has said the “secondary contributor” is the employer. It is not a second employee.

I know, it was a typo - I meant to type employer.

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By User deleted
06th Apr 2016 21:25

OK ...

... so if the wife is made sole director and has very low pay as has other earned income and husband who is working as main employee resigns as director but is paid above secondary threshold then company can claim EA?

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By Bobz
07th Apr 2016 12:20

Amendment...

NICA 2014 section 5 (latest version):

Power to amend the employment allowance provisions

(1) The Treasury may by regulations amend the employment allowance provisions—

(a) so as to increase or decrease a person's employment allowance for a tax year, or

(b) so as to add to, reduce or modify the cases in which a person cannot qualify for an employment allowance for a tax year or in which liabilities to pay secondary Class 1 contributions are “excluded liabilities”.

 

 

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By stephenkendrew
07th Apr 2016 07:20

Dividend tax?

Shouldn't we now be considering paying spouses anyway because of the dividend tax.

If we can justify a wage to the spouse of say £5,000 and deduct tax at 20% (because they've got other income) that means the amount subject to dividend tax is £4,000 less - i.e. a further saving of £300. Before 6 April 2016 (assuming the higher rate tax band isn't reached) there would have been no saving.

So paying one spouse a salary of £5,000 can save the client £535.

My clients wouldn't be happy if I didn't tell them about this. And I wouldn't be able to sleep at night if I charged them an extra £500 for doing this!

 

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Replying to spike418:
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By whatdoyoumeanwashe
07th Apr 2016 11:07

Are they doing £5k of work?

stephenkendrew wrote:

Shouldn't we now be considering paying spouses anyway because of the dividend tax.

If we can justify a wage to the spouse of say £5,000 and deduct tax at 20% (because they've got other income) that means the amount subject to dividend tax is £4,000 less - i.e. a further saving of £300. Before 6 April 2016 (assuming the higher rate tax band isn't reached) there would have been no saving.

So paying one spouse a salary of £5,000 can save the client £535.

My clients wouldn't be happy if I didn't tell them about this. And I wouldn't be able to sleep at night if I charged them an extra £500 for doing this!

 

Is it realistic to expect all these spouses to suddenly find the time to do £5,000 worth of work? I suspect most would in practice do nothing for their salary, which would surely cause problems in the event of an investigation?

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By Matrix
07th Apr 2016 07:54

Agree with the dividend planning point.  But you would have to have both the couple's taxable income projected for the year (which could change), run the extra payroll, explain to client why their spouse is paying BR tax (cashflow).  There are further savings from transferring shares and using another £5k dividend allowance.

Offer bepoke tax planning but it takes time and so charge accordingly.

Also if the spouse is employed elsewhere then are they doing anything in the business to justify the CT deduction?

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JCACE
By jcace
07th Apr 2016 10:09

Ambiguous

SSCBA 1992 s7 doesn't necessarily define what a secondary contributor is, but rather who the secondary contributor is. I agree that other parts of related legislation suggests that the secondary contributor is not necessarily the same as one who incurs such a liability, but I would say it's far from clear.

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By Portia Nina Levin
07th Apr 2016 10:29

It is not ambiguous at all.

As you say the SSCBA 1992, section 7 defines who the secondary contributor is "in relation to any payment of earnings".

The new exception in NICA 2014, section 2(4A) then says that a company (C) cannot qualify for an employment allowance for a tax year if 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 who is a director of C when each of those payments is made.

Where is the ambiguity of which you speak?

As I have noted, what the new section 2(4A) does not do, but which section 1(1) does, is then add the qualification that C must be liable to secondary contributions in consequence of being the secondary contributor in relation to such payments of earnings.

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JCACE
By jcace
07th Apr 2016 10:46

Contributor

The ambiguity is that there is no definition of what a secondary contributor is. If a contributor is by definition, one who contributes, then s7 says that the secondary person who contributes in relation to any payment of earnings is etc etc etc

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By SteveHa
07th Apr 2016 10:56

I agree with  jcace.

I agree with  jcace.

Consider the simple sentence, "A child's mother is his parent". Without defining the characteristics of a mother one could argue that a father is the mother.

Simply defining who is inadequate and leads to the ambiguity.

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By Portia Nina Levin
07th Apr 2016 11:29

Let me put it in words of one syllabub then for the benefit of the hard of understanding.

X Ltd makes a salary payment of £500 to Fred, who is a director of X Ltd.

Now we do not need to concern ourselves with Fred directly; we are interested in the £500 payment of earnings, on which Fred's status may have some bearing.

Applying SSCBA 1992, section 7, we can now determine that X Ltd is the secondary contributor in relation to the £500 payment of earnings. That is what section 7 says.

We can also consider the £500 payment of earnings and any other payments of earnings in relation to which X Ltd is the secondary contributor (worked out in exactly the same way) in the context of NICA 2014, section 2(4A).

If the only payments of earnings in relation to which X Ltd is the secondary contributor (which includes the £500 payment just discussed) are to Fred (who is a director), then X Ltd cannot claim the employment allowance. That is what section 2(4A) says.

However, if there is any payment of earnings in the same tax year in relation to which X Ltd is the secondary contributor (as determined under SSCBA 1992, section 7) and which is not paid to or for the benefit of Fred, then X Ltd can claim the employment allowance (assuming that it meets the further requirement of NICA 2014, section 1(1)(b)).

We do not need to know what a secondary contributor is. We simply need to know who the secondary contributor is in relation to each and every payment of earnings.

How difficult is this really?

And it is completely frigging irrelevant who a child's mother is.

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By SteveHa
07th Apr 2016 11:33

Disagree, PNL

As has already been highlighted (and which my "mother" example illustrates, describing who someone is does not make everyone fitting that description that someone.

I maintain that a secondary contributor must contribute, and must be the person described in the legislation, and not simply be a person who could be a secondary contributor.

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By Portia Nina Levin
07th Apr 2016 11:40

I disagree with your disagreement, but trying to educate you seems to me to be a pointless task.

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By whatdoyoumeanwashe
07th Apr 2016 11:51

Assuming you can do it, is it worth bothering for £200 of tax saving (less the cost of the extra payroll), and the risk that it is not defendable since the spouse will most likely do no work for their salary, despite their claim to the contrary?

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By Portia Nina Levin
07th Apr 2016 12:18

No. Just putting the wife on the payroll in order to claim the employment allowance does not work, because of NICA 2014, sections 2(10)-(13).

However, in a situation where you have a director earning above the secondary  threshold, and one or more employees earning below the secondary threshold the employment allowance is due on a proper interpretation of the legislation, which contains no ambiguity.

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By Portia Nina Levin
07th Apr 2016 13:50

By the way doubters, see the second paragraph of the explanatory notes to the amending SI: http://www.legislation.gov.uk/uksi/2016/344/note/made?view=plain

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Replying to doubletrouble:
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By thomas34
07th Apr 2016 14:24

Agreed

Portia Nina Levin wrote:
By the way doubters, see the second paragraph of the explanatory notes to the amending SI: http://www.legislation.gov.uk/uksi/2016/344/note/made?view=plain[/quote]

 

 

For those who believe the guidance notes (issued 6 April 2016), refer to paragraph 3.

"All employees are directors where both earn above the secondary threshold" - what? Who writes this stuff?

 

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By Portia Nina Levin
07th Apr 2016 14:39

So I clicked on the "Is there

So I clicked on the "Is there anything wrong with this page?" link on the (mis)guidance on .Gov.uk, and I was presented with two small boxes. The first was titled "What were you doing" and the second "what went wrong".

Into the first I typed "Looking at the content". Into the second went the words "I found that the content was completely incorrect and not in accordance with the underlying legislation".

I was thanked for my feedback, but I feel sure it will fall on deaf ears.

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