From April 2025, the Employment Allowance has increased to £10,500, and more businesses are now eligible to claim it. This is part of a package of employment allowance changes designed to help small business owners and employers offset rising national insurance contributions (NICs).

If your business employs staff and pays employer’s National Insurance, this change could significantly reduce your employment costs.

What Is the Employment Allowance?

The Employment Allowance is a government incentive that allows eligible businesses to reduce their employer’s National Insurance liability on Class 1 NICs.

From April 2025, the allowance has more than doubled – rising from £5,000 to £10,500 per tax year.

This means you can reduce the employer’s liability on your NI bill by up to £10,500 annually. If your Class 1 NIC bill is less than the maximum, you can claim less than the full allowance to cover just your actual liability.

Key Changes in April 2025

• The cap on eligibility for businesses paying less than £100,000 in employer NICs has been removed.

• This change means more employers can now claim the employment allowance.

• You must reclaim the allowance each tax year – claims do not roll over automatically.

These changes were introduced as part of the Autumn Budget to support businesses managing rising employment costs.

Who Can Claim Employment Allowance?

You can claim the Employment Allowance if you:

• Are an employer paying Class 1 National Insurance

• Have more than one employee, or two or more directors (if a limited company)

• Meet state aid rules (if they apply to your business)

• Are not an excluded category (see below)

You cannot claim if you:

• Are a limited company with only one director and no other employees

• Employ someone whose earnings fall under off-payroll working rules (IR35)

• Employ someone for personal or domestic work (unless they’re a carer or support worker)

• Are a public sector employer doing mostly NHS services or work of a public nature

• Are a local council

Other Eligibility Criteria

• If you operate more than one payroll or have connected companies, your NICs are combined to assess eligibility.

• You can only claim once across all PAYE schemes.

• State aid rules apply – particularly under the de minimis threshold, which affects how the allowance is counted towards government support limits.

How to Claim the Employment Allowance

Most businesses claim the Employment Allowance via their payroll software or HMRC’s Basic PAYE Tools.

The claim is made when submitting your Employer Payment Summary (EPS), which is part of your routine Real Time Information (RTI) reporting.

Make sure you:

1. Tick the employment allowance indicator in your payroll system

2. Submit your EPS to HMRC with your employer details

3. Keep records showing your eligibility criteria are met

If you use your own payroll software, check that it supports this function.

Important Notes for Employers

• You must claim each tax year – previous claims do not carry over.

• If you become no longer eligible, you must stop claiming the Employment Allowance through your EPS.

• The allowance can only be applied to Class 1 NICs – not to Class 1A or Class 1B NICs (e.g. on benefits in kind or termination payments).

• The allowance does not reduce the amount of NIC due on statutory maternity pay, sick pay, or employee earnings.

Why This Matters for Small Businesses

This increase provides a vital boost to smaller employers facing rising employment costs. If you’re a small business owner, this could represent a significant reduction in your national insurance liability, freeing up cash to reinvest in your business.

Employers should also take this opportunity to review their payroll setup, check their NIC thresholds (including the secondary threshold and primary threshold), and ensure they claim the employment allowance correctly for the current tax year.

Need Help?

If you're unsure whether your business qualifies or how to claim, speak to your accountant or payroll provider. Alternatively, reach out to the team at Herbert Lewis Williams & Associates for tailored advice on your employment allowance claim.

Source: [HM Revenue & Customs, 06 July 2025]