Changes to Employment Allowance and e mployers ’ National Insurance were some of the most significant updates in the 2024 Autumn Budget. After having promised not to hike taxes for working people, Chancellor of the Exchequer Rachel Reeves announced that UK businesses will pay more in e mployers ’ National Insurance contributions (NICs) from April 2025. In addition, the threshold at which employers start paying National Insurance will drop by over £4,000. Reeves also announced that businesses can claim more than twice as much in Employment Allowance to offset these rising payroll costs. However, as the new tax year approaches, small firms are urged to check whether they qualify for tax relief. In this blog, we explain the tax changes coming into force for employers on 6 April 2025. We’ll also clarify the Employment Allowance eligibility criteria to help you determine whether this financial support is available to you.
National Insurance is a tax that entitles UK workers to a State Pension and certain benefits. It is paid partly by the employer and partly by the employee. Currently, employers pay secondary Class 1 N ational Insurance contributions at a rate of 13 .8 % of a worker’s earnings above £175 a week (or £9,100 a year). F rom 6 April 2025, this will rise to 15%. In addition, t he threshold at which employers start paying NI Cs on an employee’ s salary will drop significantly from £9,100 to £5,000 a year .
This was one of the hardest-hitting pieces of news for small and medium-sized enterprises (SMEs) in the Autumn Budget , as the cost of hiring new staff will increase tremendously, squeezing cash flow and margins. To offset the higher NICs , Reeves also announced that certain businesses can claim more than twice as much in E mployment A llowance . This tax relief is rising from £5,000 to £10,500 a year on 6 April 2025. E ligible businesses and charities can currently claim Employment Allowance if their secondary Class 1 N ational Insurance liabilities were less than £100,000 in the previous tax year. This cap is also being removed on 6 April.
The above tax changes could significantly increase payroll expenses for many businesses. To avoid this, some employers had paused recruitment immediately after the Autumn Budget announcement in October 2024.
However, the removal of the £100,000 restriction and increase in Employment Allowance will, in fact, help protect small businesses. The government estimates that over one million UK employers will either pay the same NICs or less than they did previously, and around 865,000 won’t pay any NI Cs at all in 2025/26.
With the current tax year coming to an end , we advise small businesses to prepare for the new tax rules by checking their eligibility for Employment Allowance. It’s vital to be prepared for these changes and understand how they will impact your company.
From April 6, 2025, businesses, charities , and care workers can claim Employment Allowance regardless of their national insurance bill total. Community amateur sports clubs (CASCs) are also eligible if the employer pays employer Class 1 NICs on employees’ or directors’ earnings. You are also eligible if you’re part of a group of charities or companies (also known as connected companies). H owever, only one charity or company in the group can claim tax relief.
Here are some examples of limited companies that qualify for Employment Allowance:
If you start the 2025/26 tax year with several employees earning above the secondary threshold, but your circumstances change during the tax year, and the director becomes the only employee liable for secondary Class 1 NI Cs , you’ll still be able to claim Employment Allowance for the whole tax year. However, you won’t be able to claim tax relief in the following tax year (unless the business becomes eligible again) .
You cannot claim Employment Allowance if your company is public or conducting more than 50% of its business in the public sector (unless it’s a registered charity). This includes work with public authorities, educational institutions, and NHS services.
Also , please note that single-director limited companies with no other employees earning above the secondary NI C threshold are not eligible for Employment Allowance. Even i f there are multiple employees and the director is the only employee earning above the secondary threshold , the company won’t qualify for tax relief. Here are some scenarios that don’t qualify for Employment Allowance:
If you’re unsure if your company meets the qualifying conditions or you’d like to estimate your next N ational Insu rance bill, please speak to a qualified accountant.
Generally, increasing the Employment Allowance and removing the £100,000 threshold will help ease payroll expenses for many small businesses. However, little attention has been paid to the Employment Allowance eligibility criteria, which could catch sole director limited companies out. It’s vital to check whether you qualify for tax relief to protect your company ahead of the upcoming tax changes. Thanks for reading. Please comment below if you have any questions, and we’ll reply. In the meantime, check out the Rapid Formations blog , where you’ll find more tax and finance advice for limited companies. If you would like to register a limited company, a good place to start is our Rapid Formations homepage, where you can check if your company name is available to use at Companies House.