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CIOT Calls For Rethink On UK NICs Allowance Reform

by Robert Lee, Tax-News.com, London

18 January 2016


The Chartered Institute of Taxation (CIOT) has called on the UK Government to rethink proposals to exclude one-person businesses from claiming the national insurance Employment Allowance (EA).

The Government recently concluded a consultation on proposals it said will focus the allowance on companies that support employment. Under the current rules, the EA entitles the majority of businesses, charities, and community sports clubs to a reduction of up to GBP2,000 (USD2,858) per year on their employer National Insurance contributions (NICs) bills. From April 2016, the allowance will be increased by GBP1,000 to GBP3,000.

The Government estimates that around 150,000 limited companies with a single director will be affected by the proposal to withdraw the allowance from companies where the director is the sole employee.

The CIOT said that the draft regulations published by the Government will not meet their objectives and will be easily avoided. It pointed out that a director could simply appoint another director, such as a spouse, civil partner, or friend, and pay that person a token wage. Alternatively, a director could arrange payments of earnings so that the worker is not a director when at least one of the payments is made.

The CIOT also said that a single payment could be made after a director had resigned, thereby enabling a company to escape the exclusion and qualify for Employment Allowance. The former director could then be re-appointed as director of the same company.

The CIOT recommended that the legislation include a connected persons test, to prevent any limited company where there are two directors who are connected persons (and no other employees) from benefitting from the allowance.

"The regulations will have the effect of penalizing those single director-employee limited companies that are unable to, or do not know that they could, appoint another person as a director or employee in order to claim EA. Their focus is not therefore sharp enough to meet the policy objective of supporting businesses that grow by taking on more employees," the CIOT concluded.

TAGS: tax | business | revenue guidance | employees | United Kingdom | payroll | ministry of finance | tax authority | legislation | social security | HM Revenue and Customs (HMRC) | charities | tax reform | regulation | trade association | HM Revenue and Customs (HMRC) | trade | individual income tax | Employment

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