Employer’s Class 1 National Insurance is a significant cost for employers, being charged at 15% on earnings over the relevant threshold. However, there are some steps that employers can take to reduce their bill.

Claim the Employment Allowance

The Employment Allowance is a valuable allowance which reduces an employer’s secondary Class 1 bill by up to £10,500 a year. The allowance is capped at the employer’s secondary Class 1 liability for the year where this is less than £10,500.

The allowance is not given automatically and for eligible employers to be able to benefit from it, they need to claim it. This can be done through their payroll software.

The allowance is not available to companies where the sole employee paid above the secondary threshold is also a director, rendering many personal companies ineligible. However, consideration could be given to perhaps changing the director to a spouse or civil partner or taking on a second employee and paying them above the secondary threshold (set at £96 per week).

Employ part-time workers

Employers pay secondary Class 1 National Insurance on employees’ earnings above the secondary threshold. By employing more part-time workers and less full-time workers, the employer is able to benefit from additional secondary thresholds, reducing their overall bill.

Example

An employer employs a full-time worker who is paid £4,000 a month. None of the higher secondary thresholds apply. The employer pays secondary Class 1 National Insurance of £537.45 a month (15% (£4,000 – £417)).

If instead the employer employed two part-time workers, paying them each £2,000 a month, the employer would pay secondary Class 1 National insurance of £237.45 a month for each employee (15% (£2,000 – £417)) – a total monthly bill of £474.90. By employing two part-time workers rather than one full-time worker, the employer saves £62.55 a month (15% of the monthly secondary threshold of £417). This is an annual saving of £750.60.

Employ workers under the age of 21

A higher secondary threshold – the upper secondary threshold for under 21s – applies where the worker is under 21. For 2026/27, it is set at £967 per week, £4,189 per month and £50,270 per year. Employer contributions (at 15%) are only payable on earnings in excess of the threshold. Employing a worker under 21 rather than one over 21 can reduce the employer’s secondary Class 1 bill by up to £6,790.50 a year.

Employ apprentices

A higher secondary threshold also applies in respect of the earnings of apprentices under the age of 25. The apprentice upper secondary threshold (AUST) is set at £967 per week, £4,189 per month and £50,270 a year for 2026/27. Taking on apprentices can be beneficial for the business and reduce the employer’s National Insurance bill. However, the apprentice must meet the statutory definition in the National Insurance legislation for the AUST to be available.

Employ armed service veterans

Taking on an armed forces veteran can also pay. A higher secondary threshold, the veterans upper secondary threshold, applies to the earnings of an armed forces veteran in the first 12 months of employment since leaving the armed forces. It is available for 2026/27 and is set at £967 per week, £4,189 per month and £50,270 a year.

Relocate to a Freeport or an Investment Zone

Employers whose businesses are located in a Freeport or an Investment Zone benefit from a range of tax incentives. These include a higher secondary threshold for new employees in their first three years of employment in a Special Tax Site. The threshold is set at £481 per week, £2,083 per month and £25,000 a year.

It should also be noted that employers can deduct secondary Class 1 contributions in calculating their taxable profits.

Businesses which give away free gifts or samples need to be aware of the VAT implications to ensure that they account for VAT correctly.

Gifts

Where a business makes a free gift, they do not receive any consideration in return.

If input tax has been incurred in relation to that gift which can be recovered, the business must account for VAT on the cost value of the gift unless the gift is a business gift.

Business gifts

A gift is a business gift if it is made in the course of promoting the business and the business is entitled to reclaim the VAT charged as input tax. The range of items that may count as a business gift is wide, including brochures and posters to expensive executive gifts. The definition also includes long service awards and retirement gifts, items given to trade customers, thank-you gifts given to customers and prizes in free lotteries or competitions or dispensed from gaming machines.

A business does not need to account for VAT on business gifts as long as the total cost of business gifts made to the same person does not exceed £50 in any 12-month period. However, where the total cost of business gifts to the same person exceeds this limit and the business is entitled to recover the VAT incurred on the purchase as input tax, they must account for VAT on the total cost value of the gifts.

Where a gift is used for business purposes by the recipient and VAT is accounted for, as a VAT invoice cannot be issued, the business must issue a tax certificate which must contain the words ‘No payment is necessary for these goods. Output tax of £X has been accounted for on the supply.’

Samples

A sample is defined for VAT purposes as ‘a specimen of a product which is intended to promote the sales of that product and which allows the characteristics  and qualities of that product to be assessed without resulting in final consumption, other than where final consumption is inherent in such promotional transactions’.

Free samples are not liable to VAT.

However, it should be noted that a finished item from a discontinued line does not count as a sample. Further, an item is not regarded as a sample where it is provided in greater quantities than necessary to assess its characteristics and qualities. For example, if a wine importer provided a client with a bottle of wine, HMRC would accept that it was a sample. However, the provision of a case of 12 bottles would suggest more than a sample.

Mandatory payrolling was due to come into effect from 6 April 2027. However, it has now been announced that the introduction will be phased in, with mandatory payrolling only applying to benefits in kind in phase one from 6 April 2027, with all remaining benefits in kind (with the exception of taxable cheap loans and living accommodation benefits) being brought within mandatory payrolling from 6 April 2028. From the same date, employers will be able to opt to payroll taxable cheap loans and living accommodation benefits if they register to do so before the start of the 2027/28 tax year. These benefits are to be brought within mandatory payrolling from a later date.

Nature of payrolling

Under payrolling, the taxable amount of a benefit in kind is treated like extra pay which is paid to the employee with the same frequency as their cash pay. For example, if a monthly paid employee receives medical insurance with a cash equivalent value of £600, the employee’s gross pay for PAYE purposes each month would include £50 in respect of the medical insurance benefit. Tax is worked out on the total gross pay in the pay period and deducted from the employee’s cash pay.

As most benefits in kind are within Class 1A National Insurance, rather than Class 1, the payrolled benefit is not included in gross pay for National Insurance purposes.

Phase one

Mandatory payrolling is phased in from 6 April 2027. From that date it will apply to:

• company cars;
• car fuel;
• company vans;
• van fuel; and
• medical benefits.

Employers must payroll these benefits from that date. For 2027/28, payrolling is optional for other benefits in kind including taxable cheap loans and living accommodation benefits. There is no need to register benefits for which payrolling is mandatory. However, where a benefit is to be payrolled voluntarily in 2027/28, it must be registered for payrolling before the start of that tax year.

Phase two

From 6 April 2028, mandatory payrolling is extended to all other benefits in kind with the exception of taxable cheap loans and living accommodation benefits from 6 April 2028 (however, employers will be able to opt to payroll these voluntarily as long as they are registered for payrolling before the start of the new tax year).

Class 1A National Insurance

For 2026/27 and earlier tax years, Class 1A National Insurance is included in the Class 1A National Insurance calculation on the P11D(b). The liability is paid in a single lump sum after the end of the tax year. Payment must be made by 22 July following the end of the tax year where payment is made electronically or by 19 July if payment is made by cheque.

However, under mandatory payrolling, the associated Class 1A National Insurance will be reported through Real Time Information on the Full Payment Submission each month and paid over to HMRC with the PAYE and Class 1 National Insurance for the month. This will bring forward the payment date and may have cashflow implications for employers.

During the move to in-year collection, employers may pay some Class 1A National Insurance monthly and some after the end of the tax year.

Impact on P11D and P11D(b)

Where a benefit is payrolled, it is not reported on the P11D. The introduction of mandatory payrolling will render the P11D obsolescent. For 2028/29 and later tax years, it will only be used to report taxable cheap loans and living accommodation where the employer has not opted to payroll these.

As noted above, under mandatory payrolling, Class 1A National Insurance contributions are reported and paid in-year. This will mean that benefits in kind within mandatory payrolling will not be included in the Class 1A calculation on the P11D(b). For 2028/29 and later tax years, the P11D(b) will only be used to calculate the Class 1A National Insurance liability on taxable cheap loans and living accommodation benefits where these are not payrolled.

Pension contributions benefit from tax relief. However, the amount of the relief is capped at the lower of 100% of earnings (or £3,600 where this is higher) and the available annual allowance.

Annual allowance

The annual allowance is set at £60,000 for 2026/27. However, it is reduced where both adjusted net income exceeds £260,000 and threshold income (broadly income excluding pension contributions) exceeds £200,000, by £1 for every £2 by which adjusted net income exceeds £260,000 until the minimum allowance for the year is reached. This is set at £10,000 for 2026/27.

Once the current year’s allowance has been used up, unused allowances from the previous three years can be used, with an earlier year’s available allowance used before a later year.

Employer contributions

Employer contributions count towards the annual allowance but are not subject to the 100% of earnings cap.

Methods of tax relief

Individuals benefit from tax relief at their marginal rate of tax on pension contributions that they make up to the permitted limits.

There are two methods by which relief may be given – under a net pay arrangement or under a relief at source arrangement.

Relief at source

Under a relief at source arrangement, an employer takes an employee’s pension contribution from their net pay. The amount paid to the pension provider is net of basic rate tax. The pension provider reclaims the basic rate of tax from HMRC. If the employee pays tax at the higher or additional rates, they will need to claim relief for the difference between the rate at which they pay tax and the basic rate in their Self-Assessment tax return.

Example

David is a higher rate taxpayer. He pays into a personal pension and his employer deducts pension contributions of £300 a month from his net pay (£3,600 a year).

This is paid net of basic rate tax and equivalent to a gross contribution of £4,500. The pension provider claims an amount equal to the basic rate (£900) from HMRC.

As a higher rate taxpayer, David is entitled to relief at 40%. This is worth £1,800. He has received relief of £900 from HMRC. He can claim relief for the remaining £900 in his Self-Assessment tax return.

The contribution of £4,500 costs him £2,700 (the £3,600 deducted from his pay, less the further relief of £900 claimed in his tax return).

Net pay

Under a net pay arrangement, a pension contribution is deducted from a person’s gross pay (before applying PAYE). In this way, relief is given at their marginal rate of tax, and there is no need to claim relief through Self-Assessment. This method is usually used by workplace pensions.

The approved mileage allowance payments (AMAP) system allows employers to make tax-free mileage allowance payments to employees who use their own vehicles for work.

The payment is tax-free as long as it does not exceed the ‘approved amount’. This is the number of business miles in the tax year multiplied by the approved rate for the vehicle in question.

Different rates are set for cars and vans, motorcycles and cycles. Additionally, for cars and vans there are two rates – a higher rate for the first 10,000 business miles in the year and a lower rate for any further business miles in the tax year.

In light of the fuel price rises as a result of the Iran war, the rate for the first 10,000 business miles in a car or a van was increased from 45p per mile to 55p per mile for 2026/27. The other rates were unchanged.

Consequently, the approved mileage rates for the 2026/27 tax year are as follows:

	Rate
Cars and vans First 10,000 business miles Subsequent business miles	55p per mile 25p per mile
Motorcycles	24p per mile
Cycles	20p per mile

It is important to note that the approved amount is calculated for the tax year as a whole, rather than for each individual journey.

Payments not exceeding the approved amount

As long as the payment does not exceed the approved amount, the payment can be made tax-free.

If the amount paid is less than the approved amount, the employee can claim tax relief for the shortfall.

Example 1

Andy uses his own car for business and drives 15,000 business miles in the 2026/27 tax year. His employer pays a mileage rate of 45p per mile for all business miles. Andy receives a mileage payment of £6,750 (15,000 miles @ 45p per mile).

The approved amount is also £6,750 ((10,000 miles @ 55p per mile) + (5,000 miles @ 25p per mile)).

As the amount paid does not exceed the approved amount, the payment can be made tax-free.

Example 2

Ben uses his car for business journeys. He drives 6,000 business miles in the 2026/27 tax year. His employer pays a mileage rate of 50p per mile. Ben receives a mileage payment of £3,000. The approved amount for 2026/27 is £3,300 (6,000 miles @ 55p per mile).

In this case, the mileage payment made to Ben of £3,000 is less than the approved amount of £3,300. Ben can claim tax relief for the shortfall.

Where employers have not increased their rates in line with the increase in the approved rate, employees may be entitled to tax relief.

Amount paid exceeds the approved rate

The approved amount is the maximum amount that can be paid tax-free, even if it is possible to demonstrate that actual costs exceed the approved amount.

Where the amount paid exceeds the approved amount, the excess is taxable.

Example 3

Callum uses his own van for work. His employer makes mileage payments for business travel at the rate of 55p per mile for all business mileage. In 2026/27, Callum uses his own van for 25,000 business miles. He receives mileage payments of £13,750 (25,000 miles @ 55p per mile).

The approved amount is £9,250 ((10,000 miles @ 55p per mile) + (15,000 miles @ 25p per mile)).

As the amount paid exceeds the approved amount, Callum is taxed on the excess of £4,500.

National Insurance

A similar system applies for National Insurance, except that the higher rate for cars and vans (55p per mile for 2026/27) applies to all business miles in the tax year, not just the first 10,000. This means that while there is a tax liability in example 3 above, there will be no National Insurance to pay.

A taxpayer may need to contact HMRC if they have a query about their tax affairs. There are various ways in which this can be done.

HMRC’s digital assistant

Taxpayers can ask HMRC’s digital assistant for help by visiting the Gov.uk website at www.tax.service.gov.uk/ask-hmrc/chat/self-assessment. If the digital assistant is unable to answer the question, the taxpayer can ask to be transferred to a webchat with an HMRC advisor if they are available.

X

HMRC will answer queries via X. However, this route cannot be used to discuss specific cases, so taxpayers should not include personal details. The post should start with @HMRCcustomers. The service is available between 8am and 8pm Monday to Friday and between 8am and 4pm on Saturday.

Phone

Taxpayers can also contact HMRC by phone. For Self-Assessment queries, taxpayers should call 0300 200 3310. Taxpayers with income tax queries should call 0300 200 3300. The lines are open from 8am to 6pm Monday to Friday.

Contact details for other helplines can be found on the Gov.uk website.

Post

HMRC can also be contacted by post. The correct address will depend on the nature of the query.

For Self-Assessment queries, taxpayers should write to:

Self-Assessment

HM Revenue and Customs

BX9 1AS

For PAYE and income tax queries, taxpayers should write to:

Pay As You Earn and Self-Assessment

HM Revenue and Customs

BX9 1AS

Taxpayers who have already contacted HMRC can use the online service to check when they can expect a reply. Taxpayers are advised not to contact HMRC again until this date has passed. The service is available on the Gov.uk website at www.gov.uk/guidance/check-when-you-can-expect-a-reply-from-hmrc.

Taxpayers within Self-Assessment must make payments on account towards their next tax and Class 4 National Insurance bill if the tax that they owed for the previous tax year was £1,000 or more, unless they paid more than 80% of the tax that they owed for that year outside Self-Assessment, for example, under PAYE. Each payment on account is 50% of the tax and Class 4 National Insurance liability for the previous tax year. The payments must be made by 31 January in the tax year and 31 July after the tax year. If more tax and Class 4 National Insurance is due for the year, the balance must be paid by 31 January after the end of the tax year.

Example

Tom is a self-employed gardener. In 2024/25 he had profits from self-employment of £45,000. He paid tax of £6,486 and Class 4 National Insurance of £1,945.80 – a total bill of £8,431.80.

As his total tax and Class 4 National Insurance bill is more than £1,000, he must make payments on account towards his 2025/26 bill. Each payment on account is £4,215.90 (50% of £8,431.80).

31 July 2026 deadline

The second payment on account for 2025/26 is due by 31 July 2026.

If payment is not made on time or the full amount is not paid by this date, interest will be charged from the due date of 31 July 2026 to the date that the payment is made in full.

Review the payments

As the July payment on account is made after the end of the tax year to which it relates, the profit for that tax year may be known. Where this is the case, the payment on account should be compared to the actual payments which will be due for the year. If taxable income has fallen, for example, because profits are less in 2025/26 than in 2024/25, the payments on account can be reduced.

Example

The facts are as in the example above. In June 2026, Tom does his accounts for 2025/26. During that year, he took some time off to care for his elderly mother. As a result, his profits have fallen and for 2025/26 are £36,000. His tax bill for 2025/26 is £4,686 and his Class 4 National Insurance bill is £1,405.80 – a total of £6,091.80.

If Tom makes two payments on account of £4,215.90, he will overpay by £2,240 Consequently, he reduces his payments on account.

Reducing payments on account

Where a taxpayer knows that their bill will be lower this year than last year, they can ask HMRC to reduce their payments on account. The taxpayer can do this online by signing into their personal tax account, selecting the option to view their Self-Assessment return and selecting the ‘reduce payments on account’ option. An application to reduce payments on account can also be made by post on form SA303.

Example

The facts are as in the above example. Tom opts to reduce each payment on account to £3,045.90 (50% of his 2025/26 liability). He paid £4,215.90 on 31 January 2026. He must therefore pay £1,875.90 by 31 July 2026. The payments on account will match his 2025/26 liability so there will be no balancing payment to make by 31 January 2027 (although the first payment on account for 2026/27 of £3,045.90 will be due by that date).

It is important to note that if the payments on account are reduced by too much, interest will be charged on the shortfall.

HMRC use a range of communication methods, as do fraudsters. Consequently, it can be difficult to be certain that a call, email, letter or text which seems to come from HMRC actually does. How then do you tell if the communication is genuine?

Phone calls

Scammers may pretend that they are from HMRC and try to extract a person’s bank details by telling them that they are entitled to a tax refund. This should set warning bells ringing – HMRC will never phone someone to tell them that they are entitled to a tax rebate or that they are to be charged a penalty, or to ask for personal information.

Not all calls purporting to be from HMRC will be a scam. However, to help callers identify whether a call is genuine, HMRC publish details of their current phone contacts. The list is available on the Gov.uk website at www.gov.uk/guidance/check-if-a-phone-call-youve-received-from-hmrc-is-genuine.

However, a missed call or voicemail from 0300 200 3884 is from HMRC. 

Emails

Scammers also send emails purporting to be from HMRC. However, as with phone calls, HMRC publish a list of recent email topics, which can be found of the Gov.uk website at www.gov.uk/guidance/check-if-an-email-youve-received-from-hmrc-is-genuine.

It is advisable not to open a link in an email.

Letters

HMRC may write to taxpayers. However, it is prudent to check that a letter which seems to be from HMRC actually is. HMRC publish a list of recent letters that they are sending out, details of which can be found on the Gov.uk website at www.gov.uk/guidance/check-if-a-letter-youve-received-from-hmrc-is-genuine. Examples of genuine letters include Letter IDMS99P which tells someone that they have an overdue payment on a Simple Assessment and Letter IDMS99 which tells someone that they have a payment which is overdue. HMRC may also reply to correspondence by letter.

Texts

HMRC do communicate by text, for example, to follow up a call to a helpline or to advise someone that their Self-Assessment refund is being processed. Some texts may have HMRC branding which will show HMRC as the sender, include the HMRC logo and contain the verified sender information.

As with other forms of communication, HMRC publish details of recent text contact on the Gov.uk website (see www.gov.uk/guidance/check-if-a-text-message-youve-received-from-hmrc-is-genuine).

HMRC will never ask for personal information in a text.

While a text from HMRC may include a link to the Gov.uk website or to a webchat, recipients should not open any links or reply to a text that claims to be from HMRC and offers a tax refund in exchange for personal information.

QR code

Leaflets and letters from HMRC may contain a QR code which can be scanned to access further information or help. Details of genuine letters from HMRC containing a QR code can be found on the Gov.uk website at www.gov.uk/guidance/check-if-a-qr-code-on-a-letter-youve-received-from-hmrc-is-genuine.

More than one method of communication

HMRC may use more than one method to communicate with a taxpayer, for example, a letter followed by a phone call. Details of current contacts using more than one method of communication can be found on the Gov.uk website at www.gov.uk/guidance/check-genuine-hmrc-contact-that-uses-more-than-one-communication-method.

Reporting suspicious communication

Scam text and email messages and scam social media accounts claiming to be from HMRC should be reported. Scam emails should be forwarded to phishing@hmrc.gov.uk, scam texts can be forwarded to 60599 and scam calls can be reported online.

Stay alert

It is important to stay alert and check whether communications from HMRC are genuine.

On 21 May 2026, the Chancellor announced a temporary reduction in the rate of VAT applied to children’s meals and admission to certain attractions. It does not apply to sporting activities. The measure is intended to help families over the summer holiday period.

Children’s meals and tickets to attractions currently are liable for VAT at the standard rate of 20%. However, from 25 June 2026 to 1 September 2026 inclusive, a temporary reduced rate of 5% will apply to qualifying children’s meals and tickets to attractions. The rate will revert to 20% from 2 September 2026.

Qualifying supplies

The temporary reduced rate will apply to children’s meals, children’s cinema, theatre, show and concert tickets and admission to certain attractions.

Children’s meals

For a meal to be a ‘children’s meal’ both of the following must apply:

• the meal is held out for sale only as a meal for children; and
• the meal is supplied as part of catering by a restaurant, café or similar establishment for consumption on the premises.

It is important to note that the marketing, presentation and price determine whether a meal is a children’s meal rather than who consumes it. Consequently, the reduced rate will not apply to an adult meal consumed by a child but will apply if an adult purchases a children’s meal. It should also be noted that the temporary reduced rate will not apply to meals marketed as smaller portions, lower-calorie options, discounted versions of adult meals and shared meals intended for both adults and children. Where the same meal appears on both the adult menu and the children’s menu, the children’s version should be smaller and cheaper. However, portion size alone will not determine whether a meal is a children’s meal.

If the children’s meal is supplied as a package and includes more than one course and a (non-alcoholic) drink, the reduced rate applies to the whole package. However, separate add-ons, such as sides, retain their usual VAT treatment. Meals that include an alcoholic drink are not regarded as children’s meals.

The reduced rate does not apply to takeaway meals.

Meals that are currently exempt, such as those provided alongside a supply of education, remain exempt.

The measure will reduce the cost of a children’s meal which normally costs £12 to £10.50.

Theatre and cinema tickets

The temporary reduction in VAT will apply to children’s cinema and theatre tickets. These are tickets which are marketed and sold only as a right of admission for a child. A family ticket which provides admission for one or more children will also benefit from the reduced rate. However, group tickets which are not family tickets do not qualify. Adult tickets remain standard rated.

The measure will reduce the cost of a £30 children’s theatre ticket to £26.25.

Attractions

The temporary reduced rate will also apply to admission tickets to qualifying attractions that are suitable for families. Unlike cinema and theatre tickets, here the reduced rate applies to all admissions, regardless of the customer’s age. Qualifying attractions are amusement parks and fairs (including water and theme parks but not pay-per-ride attractions), circuses, adventure parks, museums and other cultural facilities (such as nature reserves, planetariums, heritage sites and botanical gardens), zoos, aquariums, wildlife parks and farm visitor attractions, soft play centres, indoor bounce parks and indoor play facilities and observation attractions, including viewing platforms, towers and observation wheels.

The reduced rate applies only to admissions and only during the period from 25 June 2026 to 1 September 2026.

In a personal or family company, there are often transactions between the company and the director(s). For example, the company may meet personal expenses on the director’s behalf, or the director may loan money to the company to help cash flow.

It is important to keep track of transactions between the director and the company. This is done by means of a director’s loan account.  Where the director’s loan account is overdrawn there may be tax consequences for the director and the company.

If the outstanding loan balance exceeds £10,000 at any point in the tax year, the director may face a tax charge under the benefit in kind provisions. The company must also pay Class 1A National Insurance contributions at 15% on the taxable amount.

If the account is overdrawn at the year end and remains so at the corporation tax due date nine months and one day after the year end, the company must pay section 455 tax on the outstanding loan balance. The rate of section 455 tax is aligned with the dividend upper rate – 35.75% for 2026/27.

Writing off the loan

At first sight, writing off the loan may seem a simple solution to avoiding the section 455 tax. However, this too has tax consequences.

Where a director’s loan is waived, released or written off, the director is treated as if they have received a distribution equal to the amount written off. The director is taxed at the dividend tax rates. Where the write-off takes place on or after 6 April 2026, the deemed distribution will be taxed at 10.75% where it falls within the basic rate band, at 35.75% where it falls within the higher rate band and at 39.35% where it falls in the additional rate band. The director must declare the loan write-off on their Self-Assessment tax return.

Where the director is also an employee, a tax charge could also arise in respect of the written off loan under the employment income rules. However, the distribution rules take precedence, so the director does not suffer a double tax charge.

From the company’s perspective, as the write-off is treated as a distribution, the amount written off is not deductible in computing the company’s profits chargeable to corporation tax. If the loan was one in respect of which the company had previously paid section 455 tax, that tax would become repayable nine months and one day after the end of the tax period in which the loan was written off. The repayment must be claimed.

National Insurance

There is also a National Insurance cost for both the director and the company in writing off a director’s loan. Although for income tax purposes, the loan write-off is treated as a distribution, for National Insurance purposes, it is treated as a payment of earnings on which Class 1 National Insurance contributions are payable by both the director and the company (as the employer).

It may be possible to argue that the write-off is shareholders’ funds rather than earnings and is not related to the director’s work for the company. If HMRC accept this to be the case, there will be no National Insurance to pay.

A better solution

If the director is taxed at the dividend upper or additional rates on the deemed distribution, it may be preferable to leave the loan outstanding and pay the section 455 tax. Unlike a loan write-off, there will be no National Insurance to pay. If the director is able to pay off the loan at a later date, the section 455 tax will be repaid.