RA person is entitled to the employment allowance for a tax year if they incur qualifying liability per section 1 of the National Insurance Act 2014 (NICA 2014). A qualifying liability as defined under section 2(4E)(c) NICA 2014 as secondary class 1 national insurance (NIC). Thus, if a single director company were to employ someone who is not a director and pay them above the secondary threshold therefore incurring secondary class 1 NIC, the company will be eligible to claim the employment allowance for the year. This is not affected by the length of the employee’s employment, nor does it require the employee to remain employed throughout the tax year in question.
The liability covered by the eligible claim in a year in which qualifying liability is suffered will also include that of the director.
Clients should be aware that whilst this may avail the employment allowance for the whole year, any claim would cease for the following year in which there remains only the director on payroll which would mean the company is no longer entitled to claim the EA due to the exception under section 2(4A) NICA 2014.
Furthermore, under section 2(10) to (13) NICA, anti-avoidance rules will apply if the company is merely paying a ghost employee meaning, if they are to pay an employee, it should be in respect of an actual employment. This should be evidenced with the contract of employment as signed by the employee, time and attendance records as well as any other means to prove the existence of the employment.
