Employers are all too aware by now of the changes to National Insurance Contributions (NICs) which are happening in less than a month’s time from now.
From April 2025, the rate of Employer NICs will rise by 1.2%, bringing it to 15% and at the same time the per-employee threshold at which employers start to pay NICs will be reduced from £9,100 per year to £5,000 per year.
We looked at potential ways to mitigate this in a previous article on salary sacrifice arrangements.
Something else which allows eligible employers to reduce their NI liability is the Employment Allowance. Employment Allowance can save eligible businesses several thousands of pounds on their NI bill.
What is the Employment Allowance?
Employment Allowance is a government initiative which allows eligible employers to reduce their NI liability by up to £5,000 for the 2024/25 tax year.
From April 2025 this increases to £10,500 as announced by the Chancellor in the October 2024 budget.
Currently, employers that have incurred a secondary Class 1 NI liability of more than £100,000 are unable to claim the allowance. But this will be completely removed from 6 April 2025, opening up the Employment Allowance to all eligible businesses and charities, regardless of how large their secondary Class 1 NIC liabilities were in the tax year prior to the year of the claim.
Who is eligible for the Employment Allowance?
To qualify for Employment Allowance from 2025/26 you need to be:
- A business or charity with registered employees;
- An organisation with two or more directors who each earn more than the secondary threshold for Class 1 NI contributions (£5,000).
The following are not eligible:
- Businesses (but not charities) that carry out more than 50% of their work in the public sector;
- Single director limited companies;
- You can’t claim for off-payroll (IR35) workers;
- You can’t claim for anyone you hire for domestic work, for example gardeners, nannies, cleaners.
How do you claim Employment Allowance?
You need to claim Employment Allowance every tax year (6 April to 5 April). You can claim it at any time during the year, but the earlier you claim, the sooner you will get the allowance.
If you are eligible then you need to make sure you’re claiming the Employment Allowance each year as part of your PAYE submission process.
Claiming Employment Allowance for previous tax years
It is possible to backdate your claim for Employment Allowance for previous tax years and you can backdate your claim four years.
The Employment Allowance can be a valuable benefit for eligible small businesses, allowing them to reduce their NI bill by up to £10,500 for 2025/26 and it seems clear that the increase in the Employment Allowance was implemented to help offset the additional costs to small employers from the increase in the employer NIC rates.
Larger employers are unlikely to feel any relief from the Employment Allowance increase.
If you need any advice, please get in touch.
