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Connected companies and Employment Allowance: Latest guidance

Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £4,000.

You'll pay less employers' Class 1 National Insurance each time you run your payroll until the £4,000 has gone or the tax year ends, whichever is sooner.

You can only claim against your employers' Class 1 National Insurance liability up to a maximum of £4,000 each year. You can still claim the allowance if your liability was less than £4,000 a year.

To claim the Employment Allowance, you will need to know whether you, as an employers, are or were a connected company at the start of the tax year.

If at the start of the tax year, 2 0r more companies are connected, the companies will be treated as being connected for Employment Allowance purposes for the remainder of the tax year regardless of any later change of circumstance later in that tax year.

HMRC's latest guidance states that the rules relating to connected companies do not apply to sole traders, partnerships or single companies. If your company has control of, or is under the control of, another company, or both companies are under the control of the same person or persons, for example, companies linked in a group - these companies are considered connected.

The basic rule for deciding if two companies are "connected" with each other is that either: -

  • One of them has control of the other;

  • Both are under the control of the same person or persons.

You can only claim the Employment Allowance against one PAYE scheme you are responsible for. If you are responsible for more than one scheme, you must decide which scheme to set your Employment Allowance claim against.

Whether you can claim any unused allowance against another PAYE scheme that you are responsible for depends on whether the separate businesses are incorporated (e.g. limited companies) or unincorporated (e.g. sole trader) businesses.



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