Tax Chat #3

Hugh Stedman
Managing Partner
July 8, 2022
2 Minutes

Many clients are currently receiving letters of approval for the annual employment allowance which was first introduced in 2014 and has steadily increased from £2,000 up to £5,000 for 2022/23.

This is a national insurance employment allowance relief and covers the first £5,000 of employer’s national insurance incurred in the tax year.  If the total employer’s national insurance for the tax year is below £5,000 then only the amount incurred gets covered.

 We recently had a sole trader client confused by the legislation as this allowance is not available to a single employee company due to the fact that where a company has only one employee this would usually be the company director. The main purpose of this relief is to encourage businesses to employ other staff.  The confusion came due to mis-reading the legislation and thinking that as the business was a sole trader it was not eligible.  This is not the case.  For a sole trader or a partnership this relief is available even if there is only one employee because sole traders and partners are not included on the payroll.

 There is another area, however, that clients need to be aware of.  Where two or more companies are deemed to be connected only one allowance is available and the two companies must choose which of their companies will take the allowance for the year.  A connection is where one of the companies has control of the other or both companies are under the control of the same person or persons.  If you are in doubt as to this you should speak with your payroll provider who should be aware of the legislation surrounding this.

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