For the past two tax years (2014-15 and 2015-16) most employers have been able to reduce their employers national insurance bill by £2000. We have applied this to all clients that we prepare payroll for.

For the next tax year (2016-17) the employment allowance increases to £3000. However there will be a restriction which prevents this being claimed by single person companies. For this purpose, these are companies for which the only person paid more than the secondary threshold (2016-17 £8112 per year for directors £156 per week for employees) is a single director. If such a company had an employee in addition to the director, and the employee is paid above that threshold, then the £3000 employment allowance would be available.

For many single person companies capable of paying dividends this is not a problem. The calculations may still favour lower salaries that do not attract national insurance. In such cases the employment allowance is irrelevant anyway.

It is important to note that if an employer takes any action for which the purpose is to obtain the employment allowance, then the employment allowance is denied. For example, a single person company took on an employee to get the employment allowance, HMRC could later deny the allowance and impose penalties.

David Wilsdon