ACCA Advanced Taxation (ATX) Practice Exam

Under what circumstances is the Employment Allowance not available?

1. When total employer's Class 1 secondary liability is less than £100,000.

2. If the company has no employees paid above £9,100.

3. When the only employee is a director earning over £9,100.

4. If the total secondary NIC exceeds £50,000 in the previous tax year.

The correct answer is: When the only employee is a director earning over £9,100.

The Employment Allowance is designed to reduce the employer's National Insurance contributions, but certain conditions limit its availability. One of the key circumstances under which the Employment Allowance is not accessible occurs when the only employee is a director who earns above the threshold. In this scenario, a company may have only one employee, and if that employee is a director, the Employment Allowance cannot be claimed. This rule exists because the allowance is aimed at encouraging companies to hire additional staff rather than providing tax relief solely for existing directors. Since directors' earnings are treated differently in this context, no allowance can be received. This distinction ensures the allowance benefits a broader range of employers hiring additional employees rather than merely serving to relieve sole director companies of their National Insurance obligations.