Can more than one employment allowance be claimed?
An entrepreneur owns a trading company and is starting a second business through a new company. They want to know how the employment allowance works in these circumstances. How can they benefit from an unexpected bonus?
Allowance
The employment allowance (EA) was introduced in 2014 and currently provides a secondary Class 1 NI reduction on the first £5,000 of contributions due from an employer per tax year. The EA is restricted to employers with a Class 1 NI liability of less than £100,000. Companies where the only employee is the director are excluded.
The EA isn’t just restricted to companies either; any employer can claim it, so sole traders and partnerships can benefit.
Most payroll software will just automatically deduct the allowance. But what happens in the situation where there is more than one business?
Shared EA
In some circumstances, the EA has to be shared between the different businesses, including where two or more companies are connected and are “interdependent”, i.e. they use common resources such as premises, staff, finances. Connected means where one company controls the other or the same persons control both.
Different vehicle
One way around the shared EA problem would be set the new business up through an unincorporated structure, i.e. a sole trade or partnership. None of the relevant circumstances for a shared EA apply, so the EA can be claimed for each business meaning they will be better off in terms of NI by up to £5,000 every year.
The downside of using an unincorporated model is that it will mean losing control over the timing of income via salary or dividends.
Loophole
If the new business absolutely has to be a company for some reason, there is still the possibility of getting a £5,000 windfall. The rule that leads to the EA being shared where there are two interdependent companies only kicks in if there are two companies at the start of the tax year. If the entrepreneur starts their new company midway through a year both the new and existing one will be able to claim the EA for that year.
Unfortunately, the EA would need to be shared between the companies from the start of the next year, but it’s still better than nothing.
Related Topics
-
HMRC targets landlords using third-party data
HMRC has confirmed that it is using information received from third parties to identify landlords who may not have declared all of their rental income. The latest compliance campaign highlights the department's increasing use of data matching to tackle errors and omissions. What should landlords do?
-
MONTHLY FOCUS: TAX CONSIDERATIONS FOR BUY-TO-LET PROPERTY
Running a letting business is a very popular option. However, there have been a number of changes over the way that profits from property businesses are taxed in recent years. In this month's focus, we consider the tax considerations you need to keep in mind when buying property to let, and look at how the rental profits are calculated for tax purposes.
-
Practical guide: Claiming input tax on commercial property purchase
A business is partially exempt and has bought a commercial property for £1m plus VAT. This will be partly rented out, and partly used for the trade. How can they maximise their input tax claim and also submit accurate returns to HMRC?
This website uses both its own and third-party cookies to analyze our services and navigation on our website in order to improve its contents (analytical purposes: measure visits and sources of web traffic). The legal basis is the consent of the user, except in the case of basic cookies, which are essential to navigate this website.