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Employers’ Allowance & NIC Changes: What You Need to Know for 2025

Overview of the Current Tax Year


In the 2024 Autumn Budget, Chancellor Rachel Reeves brought in major changes that will affect employers from 6 April 2025. Small and medium-sized businesses can now benefit from a doubled Employment Allowance and the removal of previous eligibility limits. Taken together, this offers significant savings regardless of your staff count—perfect timing for planning your payroll budgets. 


Understanding the Allowance: A Quick Overview


Employment Allowance doubles to £10,500 (from £5,000) for the 2025–26 tax year, up to £10.5k in employer National Insurance Contributions (NICs) saved. 


  • Previous year NIC cap (£100k) scrapped, meaning more businesses—big or small—can claim the allowance. 


  • Employer NIC rate rises from 13.8% to 15%, and the secondary threshold drops from £9,100 to just £5,000 per year. 


Why This Matters in 2025


These changes result in a complex balance: while employer NIC rates increase and more wages are liable due to the dropped threshold, the increased allowance could eliminate NIC costs entirely for many smaller firms.


Example Calculation:If your employer NIC bill was £8,653, under the old rules you'd pay £3,653 after the £5k allowance. Now, with a £10.5k allowance, your NIC bill could be zero—even with the increased rate. 


For minimum-wage or part-time staff, the NIC you’d pay under old rules could be wiped out entirely, easing pressure on cost-sensitive business models such as hospitality or retail.


  • NIC rate increase: From 15% (up from 13.8%) on employer NICs from April 2025.

  • Lowering of Secondary Threshold: Employers start paying NIC on earnings above just £5,000 per year (£417/month).

  • Double savings potential: With a higher allowance and more businesses eligible, many can now significantly reduce or even eliminate their NIC bill.


Who Can Claim?


Most businesses and charities paying Class 1 employer NICs are eligible, but the following remain excluded:


  • Public authorities (except charities).

  • Sole-director companies with no other employees.

  • Household employment (e.g. nannies, gardeners).

  • Firms paying staff via personal service.


Be aware that only one connected company may claim per group, and multiple PAYE schemes can’t each claim separately.


Real-World Numbers


Imagine a small firm with a NIC bill of £8,653. Under the old rules, they'd pay £3,653 after a £5k allowance. With the new £10.5k allowance, that NIC is completely wiped out. Even as NIC rates go up, many small employers will see their payroll costs remain flat—or even lower 


Implications for Small Businesses


The changes to the Employers Allowance could significantly impact small businesses across the UK.


For businesses operating on tight budgets, this increase may be vital for maintaining their workforce. For instance, a small café with limited profit margins could use the extra funds to retain staff instead of cutting hours or roles. Moreover, with rising business costs often outpacing revenue growth, having the ability to offset tax expenses is becoming increasingly crucial.


Preparing for Changes


Here’s how to ensure you fully benefit:


  • Review your payroll software—make sure it’s set up with the new rate (£10.5k allowance & 15% NIC rate).

  • Recalculate NIC liabilities now and plan cash flow around potential zero NIC bills.

  • Ensure eligibility, especially if you’re a one-person director or part of a connected group of companies.


Updated Compliance Requirements


With any tax-related changes, new compliance requirements are likely to emerge alongside the revised Employers Allowance. Despite welcome relief, the headline changes come with new admin requirements. Employers should:


  • Adjust payroll systems ahead of time.

  • Keep accurate records of claims under each PAYE scheme.

  • Submit accurate EPS claims to HMRC for the allowance.


Consulting with Professionals


Navigating the new Employers’ Allowance rules and NIC adjustments can be complex—but you don’t have to do it alone. At Even Solutions Accountancy, we offer expert guidance and support to help you make the most of these changes and avoid common pitfalls. Here’s how we can help:


  1. Eligibility Check & System Review We’ll assess whether you qualify for the full £10,500 allowance and help ensure your payroll software is configured correctly to apply it against employer Class 1 NIC.


  2. Strategic Payroll Planning With the increase to a 15 percent NIC rate and lowering of the secondary threshold to £5,000, your NIC liability calculation needs updating. We’ll help you re-model your payroll to optimise savings and avoid.


  3. Claim Processing & Record Keeping Whether you use payroll software or HMRC’s Basic PAYE Tools, we’ll guide your EPS claims and ensure you claim eligibility correctly. We’ll also maintain accurate records of your annual claims for compliance.


  4. Regular Reviews & Ongoing SupportThese rules—especially for connected companies or charities—are evolving. We’ll review your payroll annually, confirm continued eligibility, and keep your tax position optimised year after year.


A Forward-Looking Approach


While we’re already in the 2024/25 tax year, the Autumn Budget 2024 brought forward changes that begin from 6 April 2025, at the start of 2025/26. With the Employment Allowance rising to £10,500 and a lowered employer NIC threshold, now is the ideal time for employers to get ready.


Businesses should start by:


  • Reviewing payroll systems to ensure they can handle the new allowance and NIC rate

  • Forecasting employer NIC costs, adjusting for the increased rate (15%) and allowance

  • Confirming eligibility, especially if you're currently excluded or part of a linked group


By doing this now, you'll be better placed to offset rising payroll costs, optimise cash flow, and retain or grow your team when the new year begins.


Wide angle view of a natural landscape with a blue sky

Understanding these forthcoming changes is vital to your financial planning. With proactive preparation, compliant systems, and tailored advice, you can shield your business from risk and benefit from the increased Employment Allowance.


Eye-level view of a serene garden with green foliage

At Even Solutions Accountancy, we're here to help. Whether it's eligibility checks, payroll setup, or ongoing support, we'll ensure you make the most of these updates—helping your business not just survive, but thrive in 2025–26.


📩 [Contact us today] to request a free payroll readiness review

 
 
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