Employment Allowance further guidance for employers

07 April 2016

Employment Allowance guidance has been updated to reflect changes from 6 April 2016.

The guidance for single directors clarifies what action a company or their payroll providers should take where they may have lost eligibility:

Change to Employment Allowance from 6 April 2016

From 6 April 2016, limited companies where the director is the only employee paid earnings above the Secondary Threshold for Class 1 National Insurance contributions will no longer be able to claim Employment Allowance.

The Secondary Threshold is £156 a week for the 2016 to 2017 tax year.

A company is no longer eligible for the allowance if:

  • only one employee (or director) in the limited company is paid above the Secondary Threshold
  • that employee is a director of the limited company.

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. This change only applies to limited companies.

If you’re self-employed, you won’t be affected by this change.

Stopping your Employment Allowance claim

If you are affected by these changes and at the start of the tax year your company is no longer eligible to claim the Employment Allowance, you should stop your claim. Select ‘no’ in the ‘Employment Allowance indicator’ field within your payroll software, and submit an Employment Payment Summary (EPS) to HMRC.

You must ensure you pay the full amount of employer Class 1 National Insurance contributions (NICs), without deducting the Employment Allowance.

These changes will not affect any claims made in previous years.

The additional employee test

If your company circumstances change and more than one employee or director earns above the Secondary Threshold, you’ll be eligible for Employment Allowance for the whole tax year. This includes companies where:

  • all employees are directors where both earn above the Secondary Threshold
  • the company employs husband and wife directors where both earn above the Secondary Threshold
  • the company employs seasonal workers where one or more is an employee earning above the Secondary Threshold in a week
  • where you’re the only UK based employee of an international company that meets the other eligibility criteria, and you earn above the Secondary Threshold in a week.

The decisive factor is that the additional employee(s) must be paid above the Secondary Threshold (£156 in the tax year 2016 to 2017).

Directors must be paid above the annual Secondary Threshold (£8,112 for 2016 to 2017, or pro-rata if the directorship began after the start of the tax year).

Changes in the year

If your company has several employees paid above the Secondary Threshold, but your circumstances change during the tax year and the director becomes the only employee paid above the Secondary Threshold, you can still claim the Employment Allowance for the tax year. You should stop it for the following tax year, unless there are further changes to your circumstances and a further employee is taken on and paid above the Secondary Threshold.