The "Big Boost" to Employment Allowance

The 2024 Autumn Budget brought a mix of news for employers. While the Employer National Insurance (NIC) rate has risen to 15% and the threshold for paying it has dropped to £5,000, there is a significant silver lining: the Employment Allowance has more than doubled and the eligibility restrictions have been swept away entirely.

From April 2025, the Employment Allowance rose from £5,000 to £10,500. The previous £100,000 eligibility cap has also been removed, meaning almost every business with more than one person on the payroll can now benefit - regardless of the size of their overall NIC liability.

How it works

The Employment Allowance reduces your employer Class 1 NIC bill directly. HMRC applies it from the first payroll run of the tax year, reducing your payments until the full £10,500 has been used. You do not receive a lump sum - it offsets liability in real time through your PAYE submissions. For most small businesses, this means several months of £0 employer NIC at the start of the year.

If your total employer NIC bill for the year is less than £10,500, you simply pay nothing - you cannot claim a cash refund for unused allowance. The allowance resets each April 6th, so claiming it is an annual obligation, not a one-off.

A worked example

Consider a small consultancy with three employees on salaries of £35,000, £28,000, and £22,000 respectively, plus a director drawing £12,570.

• Total payroll (employees only): £85,000
• Employer NIC at 15% above £5,000 per employee: approximately £11,700
• Employment Allowance: (£10,500)
• Net employer NIC liability: £1,200

Without the allowance, that bill would be £11,700. The saving of £10,500 almost entirely offsets the increase in NIC rates introduced in April 2025.

Who is excluded?

Despite the broadening of eligibility, certain employers still cannot claim:

• Single-director companies with no other employees - the most common exclusion. If the only person on the payroll is a director, the allowance does not apply. You need at least one other employee (including a part-time worker) paid above the secondary threshold.
• Public bodies - organisations that carry out more than half their work in the public sector.
• Connected companies - if two or more companies are under the same control, only one of them can claim the allowance across the group.

How to claim

You claim through your payroll software by indicating that you are eligible when submitting the Employer Payment Summary (EPS) to HMRC. Most modern payroll platforms - including Xero, QuickBooks, and BrightPay - handle this automatically. If you use an accountant for payroll, they should be claiming this on your behalf from the first submission of the new tax year.

If you forget to claim at the start of the year, you can still claim mid-year and the software will adjust future payments accordingly. HMRC also allows you to claim for any of the four preceding tax years if you missed it - meaning some businesses may have a correction to make right now.

Planning point for directors

If you currently operate as a sole director with no staff, hiring even a part-time employee - a family member, an assistant, or a subcontractor brought on PAYE - unlocks the full £10,500 allowance. At 15% employer NIC, that offsets the employer NIC on a salary of up to £75,000. The net saving often far exceeds the cost of the additional hire, particularly in professional services businesses with a high margin.