From April 2016 companies with only one director and no employees will no longer be able to claim the national insurance Employment Allowance (EA) under government plans. However, The Chartered Institute of Taxation (CIOT) has warned that the plans to exclude these one-person businesses from benefitting from EA (which reduces National Insurance contributions by up to £2,000 a year) will be easy to get around.
Tactics such as appointing another director (who could be a friend or family member) and paying them a token wage, would allow the company to qualify for EA. However CIOT has recommended that a connected persons test be introduced which would prevent two connected people with no other employees from claiming the allowance.
CIOT has also highlighted another way around the exclusion. A director could very easily resign and then receive a payment from the company, meaning that it would again qualify for EA. And afterwards, the former director could then be re-appointed to that same company!
We’re expecting the government to take another look at the rules around excluding one-person businesses from claiming EA and the various loop-holes which look as though it will be very easy to abuse. Hopefully there will be some further news on this before long.
As always, if you’d like us to look at anything for you or if you have any questions please do get in touch on 01782 279615.