One-person businesses may circumvent curb on employment allowance

HMRC’s plan to exclude some limited companies from claiming the National Insurance employment allowance will be ineffective according to the Chartered Institute of Taxation.

The department’s proposals in a consultation document would apply to companies whose sole employee is also the director. But the institute said companies could overcome the restriction by appointing another director such as a family member or friend and paying them a token wage. Alternatively they could arrange payments of earnings so that the individual is not a director when at least one of the payments is made. The comments came in the institute’s response to the consultation.

John Cullinane CIOT tax policy director said: “The government may find its plan to be ineffective in reducing employment allowance claims because it is open to abuse. It will simply have the effect of penalising single director-employee limited companies that...