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Employment Allowance Rises

It was announced in the last budget that the Employment Allowance for employers will be increased from £2,000 to £3,000 per year from April 2016.  Employment Allowance was introduced in 2014 and enables eligible employers to offset the allowance against their Class 1 National Insurance Contributions (NICs).  Eligible employers include sole traders, firms or charities that pay Class 1 NICs on their employees’ or directors’ earnings.

In order to benefit, employers need to confirm their eligibility through their payroll process.  The allowance will then be deducted from their NIC payments via Pay as You Earn (PAYE) throughout the course of the year.

The Chancellor, George Osborne, has said that the increase is being introduced partly to counteract additional costs to smaller employers from the introduction of a National Minimum Wage from 2016.

Unfortunately, firms who only employee is the sole director will no longer to be able to claim the allowance from 6th April 2016 in an attempt to limit misuse of the allowance by individuals attempting to limit their own personal tax liabilities.  The policy behind the Employment Allowance has always been to encourage and support businesses in recruiting staff, not to help individuals to subsidise their own personal tax liabilities.