Understanding Employment Allowance is essential for employers looking to reduce their National Insurance (NI) liabilities. From 6 April 2025, significant changes will come into effect, including an increase in the Employment Allowance to £10,500 and the removal of the £100,000 eligibility cap. These changes aim to provide greater relief for businesses while adjusting employer NI thresholds and rates.
Below, we answer some of the most frequently asked questions about Employment Allowance and how the 2025 updates will impact businesses.
What is employment allowance for employers?
Employment Allowance allows eligible employers to reduce their Employer’s Class 1 National Insurance liability by up to £10,500 per year from 6 April 2025 (previously £5,000). This means businesses can offset a portion of their Employer NICs across the tax year until they reach the maximum allowance.
The Employment Allowance is automatically applied to your Employer’s Class 1 National Insurance from April (Month 1) of each tax year and continues until the full allowance is used or the tax year ends.
Employers can track how much allowance has been applied by logging into their PAYE Government Gateway account.
Who is eligible for Employment Allowance?
From 6 April 2025, the £100,000 Employer’s Class 1 NICs cap will be removed, meaning all eligible businesses and charities will be able to claim the allowance.
Eligibility criteria:
✅ Your business must employ staff and pay Employer’s Class 1 NICs.
✅ The allowance applies to businesses, charities, and some community organisations.
✅ You can claim even if your total NIC bill was over £100,000 in the previous tax year (this restriction is being removed).
Who is not eligible?
❌ Businesses where the only employee is a company director cannot claim.
❌ Some public sector organisations and state-funded entities may be excluded.
A full list of eligibility criteria can be found on the UK Government’s website:
https://www.gov.uk/claim-employment-allowance/eligibility
How do I claim employment allowance for employers?
If you use Xero, QuickBooks, Sage, or other payroll software, ensure the allowance is correctly applied at the start of each tax year.
For Xero users, follow these steps:
- Go to Settings > Payroll Settings > HMRC.
- Locate the Employment Allowance claim box.
- Ensure it is ticked. If not, tick the box to activate the allowance.
- The allowance will be applied across the remaining months of the tax year.
If you use a different payroll system, check with your provider or consult an accountant to ensure you are claiming the full allowance available to you.
What if I haven’t claimed employment allowance previous years?
If you missed claiming Employment Allowance in past years, you can backdate claims for up to four tax years.
For businesses using HMRC’s Basic PAYE Tools, previous years can be adjusted within the software. Alternatively, you can contact HMRC directly to reclaim unclaimed allowance for eligible tax years.
Past Employment Allowance rates:
- 2019/20 tax year: £3,000
- 2020/21 and 2021/22 tax years: £4,000
- 2022/23 – 2024/25 tax years: £5,000
- 2025/26 onwards: £10,500
If you are unsure whether you have claimed your allowance correctly, it is recommended to review your payroll settings or seek professional accounting advice.
What’s changing from 6 April 2025?
From 6 April 2025, three key changes will affect Employer’s Class 1 National Insurance:
- Increase in Employer NIC Rate
- The Employer NIC rate will rise from 13.8% to 15%.
- Lower Secondary NIC Threshold
- Employers will begin paying NICs on employee earnings above £5,000 (down from £9,100).
- Employment Allowance Increase
- The Employment Allowance will increase from £5,000 to £10,500.
Additionally, the previous £100,000 Employer NIC restriction is being removed, meaning more businesses will be able to claim.
How will the changes impact my business?
The increase in Employer NICs and the lower threshold means many businesses will pay more in National Insurance. However, the higher Employment Allowance can offset these additional costs, particularly for small and medium-sized businesses.
Example: Employer NIC Costs for a Business with 5 Employees
| Tax Year |
NIC Rate (%) |
Threshold (£) |
Employer NIC Before Allowance (£) |
Employment Allowance (£) |
Final Employer NIC (£) |
| 2024/25 |
13.8% |
£9,100 |
£14,420 |
£5,000 |
£9,420 |
| 2025/26 |
15% |
£5,000 |
£18,750 |
£10,500 |
£8,250 |
| Difference |
+1.2% |
-£4,100 |
+£4,330 |
+£5,500 |
-£1,170 |