Policy paper

Employment Allowance: excluded companies

Published 25 January 2016

Who is likely to be affected

Around 150,000 limited companies with a single director and no other employees.

General description of the measure

The National Insurance contributions (NICs) Employment Allowance was introduced in April 2014, for the purpose of supporting businesses and charities in helping them to grow by cutting the cost of employment. Eligible employers can claim the allowance, which reduces their Employer NICs bill by up to £2,000 a year, rising to £3,000 from April 2016. This is an ongoing allowance. Once an employer has claimed the allowance, they will continue to enjoy it in future years, without needing to do anything further. Over a million employers have benefited from the allowance since its introduction. This measure will restrict eligibility for the Employment Allowance so that limited companies with a single director, and no other employees, will not be able to benefit from the allowance from 6 April 2016. There are no other changes to eligibility criteria: all other employers remain unaffected, and no action is needed from them.

Policy objective

The Employment Allowance cuts employment costs in order to support businesses and help them to grow. This change ensures that the Employment Allowance is better targeted at employers who may take on additional staff, and so supports the policy objective of supporting employment. Companies with a single director and no other employees, who do not recruit additional staff, should not benefit from an allowance designed to help employers with the cost of employment.

Background to the measure

This measure was announced in Summer Budget 2015, for implementation from 6 April 2016. The draft regulations to implement this measure were subject to a technical consultation running from 26 November 2015 to 3 January 2016.

Detailed proposal

Operative date

This measure will have effect on and after 6 April 2016.

Current law

Current law is contained within Chapter 7, sections 1 to 9 and Schedule 1 of the NICs Act 2014. Section 5(1)(b) of the NICs Act 2014 gives the power to make regulations that amend the cases where a person cannot qualify for the employment allowance.

Proposed revisions

Section 2 of the NICs Act 2014 will be amended through secondary legislation to define ‘Excluded Companies’. Affirmative regulations will be laid before Parliament in January 2016, setting out the detail of these provisions.

Summary of impacts

Exchequer impact (£m)

2015 to 2016 2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021
- +80 +95 +100 +105 +110

These figures were set out in table 2.1 of Sumer Budget 2015 and have been certified by the Office of Budget Responsibility. More details can be found in the policy costings document published alongside Summer Budget 2015.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

The measure is not expected to impact on individuals, households or family formation, stability or breakdown.

Equalities impacts

This measure will affect around 150,000 companies where the only employee is the director. The majority of those affected by this measure are men and in particular men aged between 40 and 60. There will be no equalities impacts on other groups sharing protected characteristics.

Impact on business including civil society organisations

The impact on businesses’ ongoing administrative burdens is expected to be negligible. There are likely to be negligible one-off costs as businesses familiarise themselves with the new rules. The same is true of civil society organisations.

Operational impact (£m) (HM Revenue and Customs (HMRC) or other)

HMRC will incur some costs implementing this change but these are expected to be negligible.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

Take-up statistics for the Employment Allowance will continue to be produced, and will inform future policy decisions.

Further advice

If you have any questions about this change, please contact Emma Barker on Telephone: 03000 586 778 or email: emma.robinson3@hmrc.gsi.gov.uk.

Declaration

David Gauke MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.