For the last couple of years employers have enjoyed the benefit of the “Employment Allowance” – a reduction of £2,000 set against employers National Insurance. This was a big boost, especially to small businesses, some of whom found the whole of their employers NI wiped out, and others who raised salaries specifically to enjoy this benefit, either to reduce Corporation Tax and/or to increase the benefit of R&D claims against director wages.
However, In the Summer Budget however, the Chancellor announced that this allowance for companies would no longer be made available to employers whose sole employees were directors. Starting from the new tax year in April 2016 those Limited companies, normally with a single or two directors (often Mr and Mrs) on the payroll and those who are already likely to be negatively impacted by the new dividend rules, will soon face this additional knock to their income.
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