Employment Allowance Changes for the 2025/2026 Tax Year

Key Changes to EmploymentAllowance and Employer NICs

1. Increase in Employment Allowance
       The maximum Employment Allowance will rise from £5,000 to £10,500, providing greater relief to eligible employers.
2. Removal of Eligibility Threshold
       The existing £100,000 secondary Class 1 NICs liability threshold will be abolished. This means more businesses, regardless of their NICs liability, will be able to claim the allowance.
3. Increase in Employer NICs Rate
       The rate of employer NICs will rise from 13.8% to 15%, increasing payroll costs for businesses.
4. Reduction in Secondary Threshold
       The threshold at which employers begin paying Class 1 NICs for employees will be reduced from £9,100 to £5,000 per annum, making more earnings subject to NICs.

What is Employment Allowance?

Employment Allowance is a government initiative designed to help businesses reduce their annual National Insurance liability. It enables eligible employers to offset their employer Class 1 NICs against the allowance until it is fully utilised or the tax year concludes.

For the 2024/2025 tax year, the allowance is £5,000, but this will increase to £10,500 from April2025, significantly boosting support for businesses.

Who Can Claim Employment Allowance?

Employers must claim Employment Allowance each tax year (6th April to 5th April). To qualify, the following conditions apply:

• You must be registered as an employer.
• Your business or charity must have employees.
• If you operate a limited company with only directors, at least two directors must earn above the secondary NI threshold.
• If you are part of a group of connected companies, only one company within the group can claim Employment Allowance.

How to Claim Employment Allowance

Eligible businesses can claim Employment Allowance through their payroll system. Once applied, the allowance is automatically offset against the employer's NIC liability. If you use professional payroll services, Cannon Accountants will ensure the Employment Allowance is correctly applied via Real-Time Information (RTI) submissions to HMRC, ensuring compliance and maximising tax relief.

Final Thoughts

With the upcoming increase in Employment Allowance and changes to employer NICs, businesses should reassess their payroll costs and take full advantage of the relief available. If you need assistance in claiming Employment Allowance or understanding how these changes impact your business, contact Cannon Accountants today for expert guidance and payroll support.

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