Changes to the Employment Allowance

Since 6 April 2014, employers have been able to utilise the employment allowance to reduce the amount of National Insurance Contributions (NICs) that they pay on employees wages by up to £2,000.

From April 2016, the employment allowance will increase to £3,000, meaning that a business will be able to employ four individuals full-time on the National Living Wage without incurring any employer’s NIC.

However, the employment allowance will be withdrawn from companies where the director is the sole employee. This is because the policy behind the employment allowance was to encourage and support businesses in recruiting staff, rather than to help individuals mitigate their own tax liabilities.

It is currently unclear whether making a spouse or civil partner an unpaid director or an employee for low-level administrative duties would allow access to the allowance, but further details should be released by HM Revenue & Customs in due course.