Take advantage of the £2,000 employment allowance from 06/04/2014

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The new £2,000 “employment allowance” that provides relief from paying employers NIC on the first £2,000 of contributions starts on 6 April 2014. For many employers, the benefit of the £2,000 relief will be obtained in the first month by reducing employers NIC payable. For others, it could take several months before credit for the £2,000 is obtained on a cumulative basis.

This new relief appears to be available to most employers, including one man band companies, and leads us to consider a change of profit extraction strategy from 6 April 2014 as it will be more advantageous to increase directors’ salaries to £10,000 instead of the NIC threshold of £7,956.

The extra £2,044 will save £409 (20%) corporation tax (£818 for two directors) whereas the additional employees NIC would be just £245 each.

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