Taking advantage of the employment allowance

Employment allowance

The changes to the NI contribution thresholds and rate from April 2025 isn’t all doom and gloom for employers. Although employers’ NI will be levied at 15% on earnings over £416 per month, the employment allowance (EA) will reduce your annual bill by £10,500 for all eligible employers irrespective of size. This compares with the current £5,000 and more limited eligibility.

Claiming the EA

Once the EA is claimed (this can be done any time but usually on the first payroll submission to HMRC of each tax year), it is automatically deducted from your NI bill for each pay period until it is used up.

For example, if your employers’ NI liability from April 2025 is £1,000 per month, you wouldn’t pay anything until February 2026.

EA eligibility

Besides ineligible one-person companies and public bodies, businesses (not charities) undertaking more than 50% of their work in the public sector are excluded from the EA, except those providing IT, security or cleaning services.

Also excluded is someone employing an individual for personal, domestic or household work, e.g. an au pair or nanny, but it is available to those employing care workers. If a company whose only employee is a director takes on another employee who is paid at a rate exceeding £5,000 per tax year, the full EA is available for the entire year.

Multiple claimants?

It isn’t possible to split the EA, so where you run multiple PAYE schemes, e.g. for different departments or branches, you’ll have to choose which one receives it, i.e. the one with the largest employers’ NI liability. For corporate groups, where a connected company or charity has already used the EA, the employer is prohibited from making its own claim. Once connected, employers remain so for the whole tax year. As a quid pro quo, new joiners won’t be connected to a group until the start of the next tax year.

Winners and losers

The losers in the EA stakes are one-person companies who will need to pay NI on a director’s salary that’s in excess of £5,000 but won’t benefit from the enhanced EA. The EA also won’t offer much comfort to larger employers with low paid part-time staff. The winners are small employers who, having previously exhausted the current EA of £5,000 before the tax year end, may find their employers’ NI completely eliminated by the enhanced threshold of £10,500 in 2025/26. Small employers could delay bonuses until after 5 April 2025 and save employers’ NI where the 2024/25 bill would otherwise exceed the £5,000 EA threshold