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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Employment Allowance: Who can’t claim the Employment Allowance? Business de-mergers

National Insurance Contributions Act 2014 - Section 2, subsections (5) to (9)

If a business de-merger occurs, whereby during a tax year a business splits to create more than one business, then none of the new businesses created will be entitled to claim the Employment Allowance in the tax year when the split occurred. Nor can any of the new businesses claim any balance of the Employment Allowance which was claimed by the original business but not used up before the de-merger occurred. However, provided each new business incurs secondary class 1 NICs liabilities in the tax years immediately following the tax year when the de-merger took place, then each of those new businesses can make separate claims for the Employment Allowance for those tax years, provided they are not connected companies (see NIM06590) or connected charities (see NIM06620).

Example

 

A husband and wife run a unisex hairdressing salon employing six staff. The business incurs secondary class 1 NICs liabilities and therefore claims the Employment Allowance. In July 2016, the proprietors decide to split the existing business to create 2 new businesses, which will operate from adjoining trading premises. The two new businesses will consist of a ladies’ hairdressing salon and a gentlemen’s barber shop. Three of the staff go to work at the ladies’ hairdressing salon and three of the staff go to work at the gentlemen’s barber shop. Both of the new businesses incur secondary class 1 NICs liabilities on the wages paid to their employees.

 

  • Neither of the new businesses is entitled to make a fresh claim for the Employment Allowance in the 2016 to 2017 tax year.
  • Neither of the new businesses can claim any balance of the Employment Allowance that was unclaimed by the original business in the 2016 to 2017 tax year before the de-merger took place.
  • Provided each of the new businesses fulfil all of the other criteria for qualifying for the Employment Allowance, they can each make separate claims for the 2017 to 2018 tax year onwards.