Employment Allowance 2025/26: What Employers Need to Know About NIC Changes
With the Autumn Budget 2024 bringing in higher National Insurance contributions (NICs) for employers from 6 April 2025, many small businesses are rightly concerned about increased staffing costs. However, there’s a silver lining: the Employment Allowance is rising too, potentially offsetting some of this burden for eligible employers.
In this post, we break down what the changes mean, who’s eligible, and how businesses can make the most of the new £10,500 Employment Allowance.
What’s Changing in April 2025?
From 6 April 2025, two major changes come into play:
- The secondary Class 1 NIC rate for employers increases from 13.8% to 15%.
- The Secondary Threshold (i.e., the level above which NICs are due) falls significantly from £9,100 to just £5,000 per year.
This means more of your staff wages will be subject to NICs — and at a higher rate.
Example:
In 2024/25, if you paid an employee £12,570 (aligned with the personal allowance), NICs were due on just £3,470 at 13.8%. From 2025/26, you’ll pay NICs on £7,570 at 15% — more than double the NIC liability on the same salary.
The New Employment Allowance: £10,500
To soften the blow for smaller employers, the government has increased the Employment Allowance from £5,000 to £10,500 starting in 2025/26.
This allowance allows eligible businesses to offset up to £10,500 of their total employer NICs liability against their overall NIC bill.
Who’s Eligible?
You’re eligible to claim the allowance if:
- You’re a business or charity (including community amateur sports clubs) that paid less than £100,000 in secondary NICs in the previous tax year (i.e., 2024/25).
- You employ staff (not just directors) and your payroll is not solely for a single director.
- You’re not a public body or doing more than 50% public sector work (with some exceptions).
- You operate only one PAYE scheme per group — if you run multiple schemes or are part of a group, you can only claim once.
How Does It Work in Practice?
The Employment Allowance is used to reduce your employer NIC liability each month until the full £10,500 is used up.
You can claim:
- In real-time through your payroll software (via your Real Time Information (RTI) submissions).
- At any point during the tax year.
- For up to four years retrospectively if you missed claiming in a previous tax year.
👉 Tip: The sooner you claim, the sooner the offset kicks in. You can backdate a claim to 2024/25 until 5 April 2029.
Winners and Losers: Who Gains from the New Rules?
✅ Winners: Small Employers with Modest Payrolls
Let’s say your 2025/26 secondary NICs total £9,000. You’d pay nothing in employer NICs after applying the full £9,000 of the allowance.
In fact, despite higher NIC rates and lower thresholds, some smaller businesses may pay less NIC overall thanks to the increased allowance.
❌ Losers: Personal Companies with a Single Director
For owner-managed businesses that pay only a director (a common tax strategy), the Employment Allowance does not apply.
Example:
In 2025/26, a director earning £12,570 would incur:
- £1,135.50 of employer NICs (15% on £7,570)
- This compares to £478.86 in 2024/25
That’s an increase of nearly £657 – and no allowance to cover it.
❌ Larger Employers
While they can now claim (the old £100,000 cap applied to NICs in the previous year, not the current one), their larger payrolls mean the £10,500 allowance won’t make much of a dent in their NIC bill. For large businesses, this is a token reduction.
Special Tax Sites & Youth Workers
Employers in special tax sites like Freeports or Investment Zones continue to benefit from enhanced NIC thresholds — i.e., no NICs up to £25,000 for qualifying employees in their first 3 years.
Also unchanged:
- Under 21s
- Apprentices under 25
- Veterans (first year of civilian employment)
For these groups, the upper secondary threshold remains at £50,270, keeping them NIC-exempt up to that limit.
How to Claim the Employment Allowance
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Use your payroll software to submit a claim through your RTI submission (e.g. via HMRC’s Basic PAYE Tools or commercial software).
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Confirm eligibility – only one claim per employer group is allowed.
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Apply early – get the benefit immediately by reducing monthly NIC payments.
📄 Official HMRC guidance on eligibility and how to claim:
Claim employment allowance – GOV.UK
Conclusion: Plan Now to Maximise the Benefit
The jump in NIC rates and reduction in thresholds from April 2025 could be painful for many employers. But if you’re eligible for the Employment Allowance, the doubling of the benefit to £10,500 can significantly soften the blow.
Whether you’re looking to model the NIC changes across your payroll or just want to ensure you’re claiming everything you’re entitled to, Merranti Accounting is here to help.
💬 Need help understanding your payroll obligations or claiming the Employment Allowance?
Speak to our expert team at Merranti Accounting today for tailored, proactive advice.
