A representative body for tax professionals today warned that proposed rules designed to tighten up claims for national insurance reductions could be too easy to dodge.
The Chartered Institute of Taxation (CIOT) cautioned that HM Revenue & Customs’ (HMRC) plans to stop limited companies where the director is the sole employee from claiming Employment Allowance to reduce its national insurance bill could be easily avoided.
Employment Allowance lets qualifying employers which pay Class 1 national insurance contributions to reduce their bill by up to £2,000, although this is due to rise to £3,000 from this April.
HMRC closed a consultation on this issue at the start of the month, after having launched it in November, and is currently reviewing the feedback, with the view of introducing new rules from April this year.
However, the CIOT told the consultation that the plans could be thwarted, for example, by appointing another director, such as a family member or friend, and paying them a token amount.
“The Government may find its plan to be ineffective in significantly reducing Employment Allowance claims because it is open to abuse,” said John Cullinane, tax policy director at CIOT.
“It will simply have the effect of penalising those single director-employee limited companies that are unable to, or do not know that they could, appoint another person as director or employee in order to claim Employment Allowance.
“We strongly suggest that the legislation should include a connected persons test to prevent any limited company where there are two directors who are connected persons, and no other employees, from benefiting from Employment Allowance.”