You’re starting a new business shortly which will employ staff. You run a separate business which also has employees. Can you claim one NI employment allowance only or one for each business?
Employment allowance
Several years ago the government introduced the employment allowance (EA) to reduce the burden of NI on small employers. It reduces employers’ NI bills by up to £4,000 per tax year. After a few teething problems and the introduction of some anti-avoidance rules to prevent one-man companies claiming it the EA is now a permanent fixture.
Claiming the allowance
Unless you personally tackle the payroll for your business you probably don’t think about the EA. Your payroll software automatically takes it into account assuming that the person who crunches the numbers for you ticks the right boxes. However, there are several situations where more thought is required. We’ve already mentioned that the EA can’t be claimed by one-man companies; another potential stumbling block is where you have two or more businesses.
Trap. Where you own, or partly own, two or more businesses, they may be entitled to only one EA between them.
One EA only
The Trap can apply:
- if you’re self-employed in two or more businesses, even if they are entirely separate. For example, if you’re a bookkeeper and own a shop
- 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. There’s an exception to this rule, see below
- where two or more limited liability partnerships are connected. Broadly where one has the right to more than 50% of the other’s assets or income.
Tip. The good news is that in some circumstances where you would expect the Trap to apply because two or more businesses are connected, loopholes in the rules mean that each is entitled to claim the EA.
Connected companies
The condition which limits connected companies to one EA between them (see the second bullet point above) applies only at the start of each tax year. For example, if you own one company and later in the tax year start another, both companies can claim the EA for that year, but for the year following they must share one.
Different business structures
Where you own two businesses through different structures, each is entitled to the EA. For example, if you are self-employed and own or partly own a company, each business can claim the EA. Similarly, if you’re self-employed but are also a partner in a business, each qualifies for the EA.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.