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Employment allowance claimable

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A query re employment allowance.

we all have read the criteria re employment allowance, but following threads on accountingweb there seem to be a lot who say that as long as a director and one other employee appears on the payroll (even if the 2nd employee is paid below the appropriate threshold) that they should claim employment allowance - what are others takes on this ??

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By Paul Crowley
16th Oct 2020 19:52

I always considered that 2nd person need to be above minimum
The man from ACCA practice society told me so
Otherwise significant incentive to pay £2 per week/month to anyone with an NI number

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By Paul Crowley
17th Oct 2020 19:13

Who cannot claim Employment Allowance
You cannot claim if you’re a public body or business doing more than half your work in the public sector (such as local councils and NHS services) - unless you’re a charity.

You also cannot claim if both of the following apply:

you’re a company with only one employee paid above the Class 1 National Insurance secondary threshold
the employee is also a director of the company

HMRC opinion as above. No. Need 2 above threshold
HMRC opinion is however regularly wrong

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Replying to Paul Crowley:
blue sheep
By NH
17th Oct 2020 05:52

[quote=Paul Crowley]

Who cannot claim Employment Allowance
You cannot claim if you’re a public body or business doing more than half your work in the public sector (such as local councils and NHS services) - unless you’re a charity.

You also cannot claim if both of the following apply:

you’re a company with only one employee paid above the Class 1 National Insurance secondary threshold
the employee is also a director of the company

you have one employee who is a Director paid above the threshold and one other employee paid below therefore you DO have only one employee who is a Director paid above the threshold (as the other employee is not paid above the threshold).

In fact in the "further guidance" HMRC state "This means that companies with several employees, where the director is the only employee paid above the Secondary Threshold, will no longer be eligible for the Employment Allowance"

There might be some who argue that the legislation does not agree but the published guidance could not be clearer

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By Matrix
17th Oct 2020 06:15

You only need to pay the employee over the threshold for one month to qualify.

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Replying to Matrix:
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By dorset1992
17th Oct 2020 06:40

Hi Matrix
So you’re saying that you only need to be paying an employee over the secondary threshold for 1 out of the 12 months of the tax year to qualify? Is there any evidence to corroborate this? Or does it fall into the area of grey whereby it could be interpreted that way?

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Replying to dorset1992:
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By NH
17th Oct 2020 07:03

No grey area - if you pay an employee over the threshold for only one month you will be liable for secondary NI and therefore can claim EA

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Replying to NH:
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By dorset1992
17th Oct 2020 07:13

Would that apply if you’re submitting an EYU for an employee? Given that you don’t actually specifically mention months, as long as you declare the ni on the EYU?

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Replying to dorset1992:
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By Tax Dragon
17th Oct 2020 08:18

I detect use of a DeLorean equipped with flux capacitor.

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Replying to Tax Dragon:
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By Paul Crowley
17th Oct 2020 17:04

Same here
but 4 year limit so a Trotter reliant 3 wheel van will do

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Replying to Paul Crowley:
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By dorset1992
17th Oct 2020 17:54

But if you had an EYU to do which amounted to £1 over the threshold for one of the 12 months, and the EYU was made on that basis with the appropriate NI declared within the EYU, does that technically then meet the criteria for claiming employment allowance?? Albeit manipulating the system as NYB puts it in the post below

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By Wanderer
17th Oct 2020 18:11

dorset1992 wrote:

But if you had an EYU to do which amounted to £1 over the threshold for one of the 12 months, and the EYU was made on that basis with the appropriate NI declared within the EYU, does that technically then meet the criteria for claiming employment allowance?? Albeit manipulating the system as NYB puts it in the post below

Mmm, think I can smell a rat. Probably a good idea to have a read of the Anti-avoidance provisions in National Insurance Contributions Act 2014 Section 2(10) et seq.
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Replying to dorset1992:
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By Paul Crowley
17th Oct 2020 19:10

Challenging to believe genuine:
Whoops I forgot to submit and pay over this really tiny Ni contribution
Even also forgot to claim my big refund of ERNIC

I say this to clients regularly
In an argument about this, I would prefer to be on HMRC side.

If HMRC have not already thought of this as a probable likely scam, then shame on them

First question: Show me the wages paid from bank?
Whole year please

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By NYB
17th Oct 2020 11:21

I have a client whose daughter does actually do some work for him. He pays her £1 over the threshold to claim NIC EE allowance. He himself takes 2K from the payroll each month so its beneficial. Its manipulating but there are worse. At least the daughter DOES some work

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By Matrix
17th Oct 2020 18:29

You shouldn’t rewrite history, you should only correct an EYU to what the payroll should have been, so to agree to payslips, bank payments, employment contract etc.

The amount of employer NI you have paid for the last tax year is no doubt small compared to the tax at stake from an IR35 review. Why draw attention to yourself?

An accountant could keep you and your company compliant and save you money, as demonstrated by the free snippet I gave you earlier in the thread.

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By dorset1992
17th Oct 2020 22:16

All the above is useful info, so thanks all - just to summarise what you are all getting at - to claim employment allowance in a tax year, you only have to pay the second ee over the threshold in any one given month? And that needs to be in ‘real time’ via the payroll, rather than via an EYU? Would HMRC advise similar if I queried it with them?

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Replying to dorset1992:
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By Paul Crowley
18th Oct 2020 14:33

If you put your head over parapet, expect consequences
You do not seem to have taken on board the comments from quite a few
What question did you intend to ask? By that I mean HMRC

I would find it difficult to phrase any question asking whether I can get money back if I pretend that submitted an incorrect RTI last year. Oh and is it true that I only need to add £1 to one month?

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Replying to Paul Crowley:
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By dorset1992
17th Oct 2020 22:41

The question now was whether the second ee needs to be paid above the annual threshold of £8,788 during the tax year to be able to clam EA, or whether they just need to be paid over the monthly £732 amount in one individual month of the tax year to qualify, regardless of if their annual pay is not over £8,788?

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Replying to dorset1992:
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By Wanderer
18th Oct 2020 00:24

dorset1992 wrote:

The question now was whether the second ee needs to be paid above the annual threshold of £8,788 during the tax year to be able to clam EA, or whether they just need to be paid over the monthly £732 amount in one individual month of the tax year to qualify, regardless of if their annual pay is not over £8,788?

The question now is WHY has the second employee got this pattern of pay? The second question now is why does an IT contractor who felt the need to check whether they were within IR35 or not all of a sudden have the need to employ somebody? For the relevance of both these questions to this issue (there are others) see my post 17th Oct 2020 18:11. The third question now is why haven't you appointed an accountant?
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Replying to dorset1992:
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By Matrix
18th Oct 2020 08:05

Never ever call HMRC for advice.

I agree with Paul and Wanderer, get an accountant. The DIY approach may have worked somewhat but you are overthinking this issue. There are likely tax savings and tax exposures you have missed.

Is the second employee’s pay tax deductible? What are they doing? Why would you call HMRC and flag this and other issues? Crazy.

I already gave you the answer in my first post and in my second post in my middle para I told you that this issue is so insignificant compared to IR35 issues.

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By Paul Crowley
17th Oct 2020 22:22

Definitely time to get an accountant.
Dividend tax is cheaper than EENIC
ERNIC just is not paid by directors that look for tax efficiency.

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