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

[WordIsBond]

Why do you attempt to do something right for a change yet still end up making yourself look like a moron?

Maybe he's been perfecting the technique for years?

[pr1]

So £235 if you claim it.

Almost covers your ipse membership (245+vat)

[ContrataxLtd]

Calculations - is this right?

2015/16
Salary 10600 so no tax. BUT you're over the NI limit by £2540 so 12% of this = £305. BUT you're saving £508 in CT (assume basic rate).
So £203 to the good.

2016/17
Salary 11000 with no tax (since band has gone up). £2940 over now so 12% of this again is £353 this year. CT saving is £588 (more if you factor in dividend tax).
So £235 if you claim it. Few weeks JSA that is mind! :-)

Am I correct?

I hate to agree with PC but on this occasion you are pretty much correct. However, the £235 is the maximum saving that can be made utilising the employment allowance on the basis that you don't want to extract every penny from the company (some do).

If you want to take out everything from the company then you will have to pay additional personal tax on the CT saving of £588 which means a basic rate tax payer will pay 7.5% on this, £44.10, a high rate tax payer will pay 32.5% on this, £191.10 and an additional rate tax payer will pay 38.1% on this, £224.03.

Therefore the maximum saving to be made by utilising the employment allowance is £235 but could be as low as £10.97 so a judgement call has to be made as to whether to really try for absolute efficiency and engineer a situation to enable a claim or just go for the easy route and not claim.

In my opinion by all means claim the allowance if you are entitled to it but for a maximum saving of £235 I wouldn't bother changing your setup just to enable a claim if it means pushing the boundaries too far.

Martin
Contratax Ltd

[psychocandy]

If you pay Mrs PC up to the Personal Allowance, double it.

As to how much JSA it is, I defer to your superior experience.

Ah no Mr MM. PAying spouse an inflated salary is a no no in my book.

£74 a week JSA I believe. Been a few years....

[psychocandy]

I hate to agree with PC but on this occasion you are pretty much correct. However, the £235 is the maximum saving that can be made utilising the employment allowance on the basis that you don't want to extract every penny from the company (some do).

If you want to take out everything from the company then you will have to pay additional personal tax on the CT saving of £588 which means a basic rate tax payer will pay 7.5% on this, £44.10, a high rate tax payer will pay 32.5% on this, £191.10 and an additional rate tax payer will pay 38.1% on this, £224.03.

Therefore the maximum saving to be made by utilising the employment allowance is £235 but could be as low as £10.97 so a judgement call has to be made as to whether to really try for absolute efficiency and engineer a situation to enable a claim or just go for the easy route and not claim.

In my opinion by all means claim the allowance if you are entitled to it but for a maximum saving of £235 I wouldn't bother changing your setup just to enable a claim if it means pushing the boundaries too far.

Martin
Contratax Ltd

Get in there :-)

[MrMarkyMark]

In my opinion by all means claim the allowance if you are entitled to it but for a maximum saving of £235 I wouldn't bother changing your setup just to enable a claim if it means pushing the boundaries too far.

Errrrm....you are replying to PC

[DaveB]

So I've had an email back from my Accountants about this, explaining why they recommended not claiming it.

Apparently the full text of the legislation is not yet available and it may be a case that spouses are counted as connected partied and so are ineligible.

They are in correspondance with HMRC for clarification. It may be that once it is clarified that it can be applied later in the year and salaries etc adjusted as required.

[WordIsBond]

Thanks for the explanation. But if it were me, I'd send this link and ask if this has been enacted or not, and if legislation.gov.uk is not reliable.
http://www.legislation.gov.uk/uksi/2...0160344_en.pdf

Are they waiting for the TIIN? Because it's the legislation, not the TIIN, that is determinative, and to rely on the TIIN is just being lazy. And the legislation itself says nothing about connected parties.

[john@UKCA]

https://www.gov.uk/government/public...loyer-guidance

[ContrataxLtd]

https://www.gov.uk/government/public...loyer-guidance

We can all post links all day long, here's one on AccountingWeb discussing the employment allowance at length - Employment allowance | AccountingWEB

Personally, I think the link you've posted is useless at best because as is normally the case with HMRC their guidance doesn't actually match what the legislation says, in particular this:

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

All in my opinion of course but is it really worth messing around to save at most £235?

Martin
Contratax Ltd