Employment Allowance for (very) small company

Jeremy535897

DullGreyGuy said:

silvercar said:

I have my own company, I am the only director and only employee. I earn an amount below the secondary threshold for employers and so the company pays no NI or income tax on my earnings.

If I make the company secretary a director, the company will then have 2 directors and would be eligible to claim employment allowance to help with NI costs, currently as there is only 1 director it is not eligible.

Is it really as simple as that?

Totally lost... you say you are currently the only person that works for the company and you are below employers NI

Then you talk about a second person that works for the company? And ask if making them a director would improve the NI situation? What NI situation as you previously said you didnt pay any?

If you have a CoSec thats not a director then making them a director won't change the NI position but will mean you can get rid of the pension scheme, if you want and neither of you currently use it. Had to promote the Mrs to a director when auto-enrolment came in

There is a director, the OP. There is an unpaid company secretary. There are no other office holders or employees. OP wants to claim the employment allowance, To do that either the company secretary must be paid enough to hit the secondary threshold, or some other director or employee must do so. £5,000 is probably justifiable as a CT deduction for an office holder who just does the minimum necessary to meet the obligations inherent in the office.

silvercar

DullGreyGuy said:

silvercar said:

I have my own company, I am the only director and only employee. I earn an amount below the secondary threshold for employers and so the company pays no NI or income tax on my earnings.

If I make the company secretary a director, the company will then have 2 directors and would be eligible to claim employment allowance to help with NI costs, currently as there is only 1 director it is not eligible.

Is it really as simple as that?

Totally lost... you say you are currently the only person that works for the company and you are below employers NI

Then you talk about a second person that works for the company? And ask if making them a director would improve the NI situation? What NI situation as you previously said you didnt pay any?

If you have a CoSec thats not a director then making them a director won't change the NI position but will mean you can get rid of the pension scheme, if you want and neither of you currently use it. Had to promote the Mrs to a director when auto-enrolment came in

The budget announcement that drops the threshold for employers NI from 9,100 to 5,000 would mean the company incurring an NI bill unless it could make use of the Employers Allowance.

tillycat123

Can I jump on this thread, as a sole employee of my Ltd company, to be able to claim the NI allowance for 25/26 what is the minimum I can employ an administrator (2nd) employee to be able to claim this?

A page back £120 a month was mentioned but I have just asked my accountant if I can add my wife who has another job and pay her £120 a month and been told no, the minimum to reclaim the NI allowance she would need to be paid £758 a month?

uknick

£758 per month is correct as that is the current amount at which an employer starts to pay national insurance for its employees.  Or, £175 per week.

Not sure where you got £120 per month from.

Rates and allowances: National Insurance contributions - GOV.UK


EDIT - Sorry, I gave 2024-25 rates.  The 2025-26 rates will be £96 per week or £417 per month.

Grumpy_chap

uknick said:

£758 per month is correct as that is the current amount at which an employer starts to pay national insurance for its employees.  Or, £175 per week.

Not sure where you got £120 per month from.

Rates and allowances: National Insurance contributions - GOV.UK


EDIT - Sorry, I gave 2024-25 rates.  The 2025-26 rates will be £96 per week or £417 per month.

There was another thread (which I think got deleted) at about the same time as this thread and that suggested the Employment Allowance could be possible if the second employee was in receipt of a salary of around £120 per month.  It was suggested to employ an individual at, say, £15 per hour for one day per month to do monthly account and that would suffice so although no additional NI had to be paid by the Ltd Co., the NI paid to the first employee was now recoverable.  For the Ltd Co., that made the second employee "free" or "nearly free", though the second employee may incur a personal income tax liability.  Added to that, the Ltd Co. could then make pension contributions in relation to the second employee.

Hopefully, someone with a better memory and knowledge than I will fill in the gaps.

silvercar

Grumpy_chap said:

uknick said:

£758 per month is correct as that is the current amount at which an employer starts to pay national insurance for its employees.  Or, £175 per week.

Not sure where you got £120 per month from.

Rates and allowances: National Insurance contributions - GOV.UK


EDIT - Sorry, I gave 2024-25 rates.  The 2025-26 rates will be £96 per week or £417 per month.

There was another thread (which I think got deleted) at about the same time as this thread and that suggested the Employment Allowance could be possible if the second employee was in receipt of a salary of around £120 per month.  It was suggested to employ an individual at, say, £15 per hour for one day per month to do monthly account and that would suffice so although no additional NI had to be paid by the Ltd Co., the NI paid to the first employee was now recoverable.  For the Ltd Co., that made the second employee "free" or "nearly free", though the second employee may incur a personal income tax liability.  Added to that, the Ltd Co. could then make pension contributions in relation to the second employee.

Hopefully, someone with a better memory and knowledge than I will fill in the gaps.

https://forums.moneysavingexpert.com/discussion/comment/81106567

Grumpy_chap

silvercar said:

Grumpy_chap said:

uknick said:

£758 per month is correct as that is the current amount at which an employer starts to pay national insurance for its employees.  Or, £175 per week.

Not sure where you got £120 per month from.

Rates and allowances: National Insurance contributions - GOV.UK


EDIT - Sorry, I gave 2024-25 rates.  The 2025-26 rates will be £96 per week or £417 per month.

There was another thread (which I think got deleted) at about the same time as this thread and that suggested the Employment Allowance could be possible if the second employee was in receipt of a salary of around £120 per month.  It was suggested to employ an individual at, say, £15 per hour for one day per month to do monthly account and that would suffice so although no additional NI had to be paid by the Ltd Co., the NI paid to the first employee was now recoverable.  For the Ltd Co., that made the second employee "free" or "nearly free", though the second employee may incur a personal income tax liability.  Added to that, the Ltd Co. could then make pension contributions in relation to the second employee.

Hopefully, someone with a better memory and knowledge than I will fill in the gaps.

https://forums.moneysavingexpert.com/discussion/comment/81106567

Thanks.
As mentioned in the linked thread, there was a third (which really has been deleted) where the pay a little over £1k part originated.  As UKNick mentioned in the linked thread, the salary does need to be higher.  
It does not seem worth doing where the only benefit is to achieve Employment Allowance.
It might be worth doing if the second employee needs to accrue NI years towards state pension.
It might be worth doing if the second employee can receive employer pension contributions.

AB62

uknick said:

£758 per month is correct as that is the current amount at which an employer starts to pay national insurance for its employees.  Or, £175 per week.

Not sure where you got £120 per month from.


EDIT - Sorry, I gave 2024-25 rates.  The 2025-26 rates will be £96 per week or £417 per month.

Advantage of both spouses being directors - Neither need to opt out of pension fund

Secondary threshold so you can claim EA - £96 per week / £417 per month / £5,000 per year

My calculations below.

1. Salary of £5001 x 2 who are directors.

 £10002 x 20% tax = £2000.40 tax liability with EA

 

2. Salary £10002 x 1 director

£5001 x 20% tax = £1000.20 tax liability

£5001 x 35% tax = £1750.35 tax liability (20% IT & 15% NI)

 £1000.20 + £1750.35 = £2750.55 tax liability without EA

 Difference = +£750 tax liability

 

3. Using dividends to drawdown assuming £500 tax free has been used

£5001 x 20% tax = £1000.20 tax liability

£5001 x 27.5% tax = £1375.27 tax liability (19% CT & 8.5% DT)

£1000.20 + £1375.27 = £2375.47 tax liability.

Difference = +£375 tax liability

AB62

Sorry meant to mention the above is for someone who has already used their personal allowance up e.g. second job of private pension.