Employment Allowance 2025:
Your Guide to the New Changes
The UK Government has announced significant changes to Employment Allowance coming in April 2025. As payroll experts, we’re here to break down what these changes mean for your business and how you can benefit from them.
What is Employment Allowance?
Employment Allowance is a relief that eligible employers can claim to reduce their National Insurance costs. It works by reducing your employer’s (secondary) Class 1 National Insurance contributions (NICs).
Key Changes for 2025/26
Several important changes are coming into effect from 6 April 2025:
Increased Allowance Amount
- Current allowance (2024/25): £5,000
- New allowance (2025/26): £10,500
- That’s more than double the current amount!
Removal of the NICs Cap
- Currently, businesses with employer NICs over £100,000 in the previous tax year can’t claim
- From April 2025, this cap will be removed
- This means many larger employers will become eligible
Who Can Claim Employment Allowance?
You can claim if:
- You have more than one employee/director paid above the secondary threshold
- Your business isn’t primarily working in the public sector
- You’re a business or charity
You cannot claim if:
- You’re a single-director company where that director is the only employee paid above the secondary threshold
- More than 50% of your work is in the public sector
- You employ someone for personal/household work (like a nanny or gardener)
How Does it Work in Practice?
Let’s look at a practical example:
Small Business Example:
- Company with 5 employees
- Annual employer NICs liability: £8,000
- Current year (2024/25):
- Can claim £5,000 Employment Allowance
- Still needs to pay £3,000 in NICs
- Next year (2025/26):
- Can claim £10,500 Employment Allowance
- Covers entire NICs liability
- No employer NICs to pay
How to Claim
The good news is claiming Employment Allowance is straightforward:
- You need to claim at the start of each tax year
- The claim can be made through your payroll software
- Once claimed, it automatically reduces your employer NICs each month until the allowance is used up
Important Things to Remember
- You must claim Employment Allowance each tax year – it doesn’t automatically roll over
- You can claim at any point in the tax year
- The allowance is applied against your employer NICs liability as it arises
- You can only claim once, even if you have multiple PAYE schemes
Next Steps
- Check Your Eligibility
- Review your circumstances against the criteria above
- Consider both current year and 2025/26 eligibility
- Plan Ahead
- Factor these changes into your 2025/26 budgeting
- Consider how the combined NICs changes will affect your business
- Seek Expert Help
- If you’re unsure about your eligibility or how to claim
- For help calculating the impact on your business
Need Help?
Understanding payroll legislation can be complex. If you need assistance with Employment Allowance or any other payroll matters, our expert team is here to help. We specialise in making payroll simple and ensuring you don’t miss out on available reliefs.
Contact us today to discuss how we can help you manage these changes and optimize your payroll processes.
Note: This information is correct as of February 2025. Always consult with a payroll professional for advice specific to your circumstances.
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