Regulation  

Sole trader advisers hit by removal of tax relief

Sole trader advisers hit by removal of tax relief

Advisory firms where the director is the sole employee - the sole traders - will no longer be able to claim employment allowance, the Budget has announced.

According to the Budget, the removal of this allowance - which is worth a couple of thousand pounds a year - is part of the government’s wider reforms of national insurance, announced in the Summer Budget.

From 2016 the Employment Allowance, which allows certain businesses to reduce their national insurance contributions, will now be increased by 50 per cent to £3,000.

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But the government has announced that to ensure that the national insurance contribtions employment allowance is focussed on businesses and charities which support employment, companies where the director is the sole employee will no longer be able to claim the allowance from April.

Rajiv Vadgama, tax director at Baker Tilly, said: “The chancellor increased the national insurance employment allowance from £2,000 to £3,000 from April 2016 which was welcome news.

“Not so welcome news was that the allowance is completely removed for companies where the director is the sole employee.

“This is likely to affect a large number of smaller businesses; this measure could encourage sole director companies to actively employ staff.”

The government has also expressed concern about the increasing popularity of salary sacrifice, where some employees and employers to reduce the income tax and national insurance that they pay on remuneration.

In the Budget it said it would actively monitor the growth of these schemes and their effect on tax receipts.