The Employment Allowance is available which can help reduce your employer Class 1 National Insurance contributions (NICs)
The Employment Allowance can significantly reduce the amount of Employer’s Class 1 National Insurance Contributions (NICs) your business pays each tax year. For the 2025/26 tax year, this allowance has increased substantially, making it potentially more beneficial for eligible businesses.
Key Changes for 2025/26:
- Allowance Amount: The Employment Allowance has risen from £5,000 to £10,500.
- Employer NIC Rate: Employer NIC rate has increased from 13.8% to 15%.
- Secondary Threshold: The employer NIC threshold has reduced from £9,100 to £5,000.
- Eligibility Threshold Removed: The previous eligibility condition (employer NICs below £100,000 in the previous tax year) has been removed. More businesses now qualify.
Are you eligible
The Employment Allowance is available to most companies with two or more employees paid above the Class 1 National Insurance secondary threshold (£5,000 per year).
However, certain important restrictions apply:
- Single-Director Companies: Companies where only one employee is paid above the secondary threshold, and that employee is also the director, are not eligible.
- Connected Companies: If your company is part of a group (connected companies), only one company in the group can claim the allowance.
- Excluded Employees: The allowance cannot be claimed for workers within IR35 rules or for personal, household, or domestic employees (except care or support workers).
How to Claim the Employment Allowance
To benefit from this allowance, your company needs to:
- Pay salaries at a level attracting Employer’s NIC (above £5,000 per year per employee).
- Submit a claim each year through your payroll software. This is not automatic, and the allowance must be actively claimed every tax year.
- Once claimed, your payroll software will automatically deduct the allowance from the Employer’s NIC liabilities throughout the year until the full £10,500 is used.
How We Can Help
As part of our comprehensive accounting service, we can manage all necessary filings and bookkeeping on your behalf. We will:
- Ensure your Employment Allowance claim is filed correctly and promptly each tax year.
- Accurately calculate your Employer NIC liabilities and inform you quarterly of any payments due.
- Provide detailed payroll instructions, ensuring your salary payments match payroll records exactly.
- Help you avoid penalties by ensuring timely and correct payments to HMRC.
Considerations and Potential Pitfalls
- While beneficial, claiming the Employment Allowance increases payroll administration. Ensure you can manage this or rely on professional support.
- Your overall tax position, including income from dividends, other employment, or investments, may affect the net tax advantage of claiming this allowance.
- Consult with our team if you have additional income sources or taxable benefits to ensure claiming the allowance remains beneficial.
Summary
For most single-director contractor companies, the Employment Allowance is typically not applicable or beneficial. However, for eligible multi-director or multi-employee companies, the increased allowance of £10,500 presents a valuable opportunity for reducing your employer NIC costs.
We encourage you to consider your specific circumstances carefully and reach out to us with any questions or for assistance in managing your payroll effectively.