Employment Allowance, To Claim, Or Not To Claim...

[Jim Spector]

I agree - I wouldn't look to add a director, but likewise my company has always operated this way and within the rules so I'm not going to stop claiming because the rules are written specifically to allow my company to claim it.

I agree, this was pretty much my take on it; The rules as they are written unambiguously mean that my company is eligible to claim it and I assumed that there would be no consternation or gnashing of teeth over it, so I was pretty surprised when my (well known) accountant seemed to be taking such an ultra-conservative approach.

[jamesbrown]

I think claiming this allowance is taking the pi55. And then folks moan when HMRC take action against contractors. It cuts both ways.

Essentially, this is my sentiment, although I think there's a reasonable case for claiming the allowance if you currently meet the conditions. I'm not trying to preach - YMMV, as always - but, as a community, we can't simultaneously take the mickey and then complain about the overwhelming complexity of the tax code and anti-avoidance drive. I think most of us have a pretty intuitive grasp of what is obviously taking the mickey (i.e. instituting something purely for the purpose of obtaining an allowance that we all know, certainly following these changes, is not intended for us), even if there's a grey area between simple tax planning and something more convoluted.

[psychocandy]

Why on earth anyone would make a significant effort to circumvent the rules, I have no idea. We're talking about a few hundred quid at most. Step back for a minute and think about why some contractors are viewed as tax avoiding scumbags. Obviously, it comes down to personal judgement but, IMO, instituting a sham arrangement purely to exploit the allowance is pretty silly; conversely, it seems reasonable to claim if your current situation allows this. As I say, personal judgement, but someone that goes to significant effort probably needs to spend more time thinking about how to improve their skills/rates.

Interested to see how much it costs by not doing exactly...

[psychocandy]

My dear wife is already a director just not an employee also. I did raise this with accountant (i.e. whether it was worth paying dear wife £1000 a year or something for office work so as to add another employee).

They advised that since she was 'connected' that this would not work.

[TheCyclingProgrammer]

Given my wife and I's share split (75:25) my accountant has recommended I take a salary for the next tax year below the employers NI threshold so this is rather a moot point for me, but their official position is that they are recommending to not claim the employers allowance as they view it as an (albeit small) risk. My wife receives a small salary as company secretary and is on the payroll.

[WordIsBond]

The legislation does not say anything about connected persons. Anyone who is advising against taking it on that basis should read the legislation.

Amendment to the National Insurance Contributions Act 2014

2. In section 2 of the National Insurance Contributions Act 2014 (exceptions), after subsection (4) insert—

“Excluded companies
(4A) A body corporate (“C”) cannot qualify for an employment allowance for a tax year if—

(a)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, and

(b)when each of those payments is made, that employed earner is a director of C.”.

Having two directors does not make you eligible. You have to have more than one person to whom your company is paying earnings as the secondary contributor, or have the one person receiving earnings not be a director.

In other words, at least two employees unless your one employee is not a director.

The only thing I'm not sure of is the "secondary contributor" language. If earnings for a second employee are below the NI threshold, is the company the secondary contributor, or is there no secondary contributor? I could look it up but can't be bothered.

An accountant who advises someone not to claim because there is a risk is providing very poor advice, IMO. It may be withdrawn in future if the second employed earner is a connected person, but it certainly hasn't been withdrawn for that reason yet.

[john@UKCA]

2 Directors

Having two directors does not make you eligible.

Yes it does according to the CIOT!

"CIOT says the planned curbs are easily avoided, either by appointing another director, such as a spouse, civil partner, other family member or friend, and paying that person a token wage; or by arranging payments of earnings so that the worker is not a director when at least one of the payments is made"

[WordIsBond]

Yes it does according to the CIOT!

"CIOT says the planned curbs are easily avoided, either by appointing another director, such as a spouse, civil partner, other family member or friend, and paying that person a token wage; or by arranging payments of earnings so that the worker is not a director when at least one of the payments is made"

Stand by for incoming missile, blowing "UK Contractor Accountant" out of the water (again).

The article linked earlier in this thread was written before the legislation was published. The legislation which has actually been enacted perhaps might possibly be construed to have more authority than an out of date article from the CIOT. Just possibly.

One would think a real accountant would know that and would actually look at the legislation (I linked it and copied it, it's not hard) rather than simply cite a dated CIOT article.

[SueEllen]

Yes it does according to the CIOT!

"CIOT says the planned curbs are easily avoided, either by appointing another director, such as a spouse, civil partner, other family member or friend, and paying that person a token wage; or by arranging payments of earnings so that the worker is not a director when at least one of the payments is made"

Not doing well in picking up clients via this board are you....

[PerfectStorm]

You could maximise the take home pay further be paying the allowance as a "loan"