Employment Allowance changes from April 2025

The Employment Allowance (EA), introduced in April 2014, currently entitles certain employers to deduct a maximum of £5,000 off their annual employer National Insurance (NI) bill.  

Two significant changes were announced in the 2024 Autumn Budget which have brought this allowance into the spotlight:

• From 6 April 2025, the amount of the EA will increase from £5,000 to £10,500.  This is a substantial increase which will help employers offset some of the additional employer national insurance costs as a result of the increase to 15% from April 2025.  
• In addition, the previous limit restricting availability of the EA to smaller employers will be removed from the 2025/26 tax year.  Previously, employers were only eligible for the EA if their total secondary Class 1 liability in the previous tax year was under £100,000.

This second change has the potential to make the EA available to many employers who were previously excluded under the eligibility condition above.  

Employers paying over £100,000 per year in secondary Class 1 NIC should check their eligibility for the EA and where eligible, make sure they are claiming the allowance to benefit from the £10,500 annual tax saving.  

Eligibility for the employment allowance

Employers should be aware that the removal of the restriction above does not guarantee that all employers will be eligible to claim the allowance.  

The allowance will remain unavailable to secondary Class 1 NIC paid by the following:

• Employees of a public authority (other than a charity), or of a business which is wholly or mainly of a public nature.  
• Employees working on the employer’s personal, family or household affairs (such as nannies, housekeepers or gardeners).
• Workers supplied by a personal service company or a managed service company.
• An employee who is the director and the only employee of the company paid in excess of the secondary threshold for Class 1 NIC (which from 6 April 2025 will be £5,000).  

If your business is in Northern Ireland, a further restriction may apply if your business is already in receipt of state aid in excess of the de minimis limits.  This does not apply to businesses based elsewhere in the UK. 

Employment allowance and group companies

The employment allowance is available per employer.  Therefore, if one employer has multiple PAYE schemes, it must choose which PAYE scheme will claim the EA.  The other schemes will not be able to make any claim.  

Multiple employers which are connected can also only claim one EA between them.  Generally speaking, employers will be connected where one has control of the other, or they are both under the control of the same person or persons. 

Companies will be connected for these purposes where they have ‘substantial commercial interdependence’.  The degree of commercial interdependence is based on the financial, economic and organisational interdependence of the companies. 

It can become difficult to determine whether two or more companies have substantial commercial interdependence, which may affect the ability for each company to claim the EA.  If you believe this could be an issue and would like further information, we would be happy to advise further on the implications for your company.  

Making a claim

Eligible employers can claim the EA through RTI on the Employer Payment Summary (EPS).  Most payroll software providers have the facility to claim the employment allowance within their payroll packages.  In addition, HMRC has included the ability to claim within its basic PAYE tools software. 

Once that EPS has been submitted, employers can deduct the allowance from the amount of secondary Class 1 NIC payable to HMRC under PAYE.  

These are made before making any other deductions for statutory payments, such as statutory maternity pay.   

The EA can only be set against the employer’s liability to Class 1 NIC and cannot be claimed against other national insurance liabilities, for example Class 1A or Class 1B NIC.

Further information

If you believe that your business may become eligible for the employment allowance from April 2025 and you have any questions regarding your eligibility, or making a claim, please contact our Employer Solutions Team and we would be happy to discuss this further.