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Employment Allowance: sole trader and ltd comp

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Joe is a sole trader plumber with a few employees. The business only does plumbing work for other businesses.

Joe is a director and 50% shareholder in Joe+Mike Ltd. Mike is the other director and 50% shareholder. Joe+Mike Ltd only does domestic plumbing work. Joe+Mike Ltd has some employees. Mike runs the business with some administrative help from Joe.

Both businesses are VAT registered. They operate from the same business premises. They do not share staff or bank accounts or supplier accounts. They each run their own PAYE with different reference numbres. Though they are both plumbing businesses one only deals with commercial and the other domestic. This has been done for commercial reasons: the sole-trader business was founded by Joe, Mike had been an employee of Joe and wanted to branch out into domestic work and wanted Joe's help to get started and ongoing admin.

Joe claims Employment Allowance against his sole-trader employer NICs. Can Joe+Mike Ltd also claim Employment Allowance? I've read the rules at which has loads of examples but none involving both an incorporated and unincorporated business. I've spoken to HMRC Employer's Helpline and they said Joe+Mike Ltd cannot claim Employment Allowance but HMRC can't say why!

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By SteLacca
21st Oct 2019 16:03

The legislation is NICA 2014 Sch 1. This has two parts:

Part 1: Company connections (no mention of sole trade at all)
Part 2: Charities - so not relevant

In the absence of any legislation at all, I'd suggest that a company and a sole trader can't be connected for the purposes of EA.

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Replying to SteLacca:
By lionofludesch
21st Oct 2019 17:31

That'll be why there're no examples, I expect.

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By The Dullard
21st Oct 2019 17:44

The only thing that would appear to prevent it is if the structure is considered to be"avoidance arrangements". I'd suggest that HMRC would be hard-pressed to argue that point, given your explanations of the arrangements.

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By David Heaton
23rd Oct 2019 11:19

There's no block on EA for either business unless there are avoidance arrangements that mean HMRC can block it (eg, if the domestic business was deliberately moved to create two entitlements, but how much effort would HMRC have to expend to prove it even if it had happened?).

Sole traders are not 'connected' with limited companies owned by the sole traders. There's a detailed example of connections in Tolley's NIC, chapter 15. The logic was agreed with HMRC before it was published. You only have connections between companies, or companies and LLPs, or charities, not between companies and sole traders or general partnerships. It's odd law, but that's what it says.

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