Small Wins & NIC Spins – Your 2025–26 Employment Allowance Breakdown

With the 2024 Autumn Budget announcement from Chancellor Rachel Reeves, employers across the UK are bracing for some major shifts - particularly around National Insurance Contributions (NICs) and Employment Allowance eligibility.

In this blog, we’re diving deep into what these changes mean for business finances in 2025–26. Settle in for a thorough walkthrough of what’s changing, why it matters, and how you can prepare.

The Headlines: What’s Changing from April 2025?

Here’s a quick summary of the three biggest updates employers need to know:

Employment Allowance increases from £5,000 to £10,500
Employer NIC rate rises from 13.8% to 15%
The secondary NIC threshold drops from £9,100 to £5,000 per employee

That’s a pretty hefty combination of give-and-take changes. While the Employment Allowance increase may seem like a win for small businesses, the higher NIC rate and lower threshold will have significant cost implications for most employers.

A Quick Recap: What Is Employment Allowance?

The Employment Allowance was first introduced in 2014 to help small businesses reduce the cost of employing staff. It effectively reduces the amount of employer NICs a business pays to HMRC each tax year.

From April 2025, the allowance will jump to £10,500 - more than double the current amount. While this sounds generous, the reality is it mostly cushions smaller businesses from the increased NIC burden, rather than creating extra financial breathing room.

Budget Changes: The Good, the Bad, and the Complicated

✅ The Good: More Employers Qualify

The previous eligibility cap of £100,000 in NIC liabilities is being scrapped. That means more businesses—especially medium-sized ones—can access the Employment Allowance from April 2025.

❗ The Bad: Increased Employer NICs

The employer NIC rate will rise to 15%, while the NIC-free band for each employee shrinks from £9,100 to £5,000. This means employers will pay NICs on more of each employee’s earnings, and at a higher rate. Not great news for your payroll budget.

🤯 The Complicated: Policy Layering

These overlapping changes—raising the allowance, upping the NIC rate, and shrinking the NIC-free band—create a confusing mix of relief and pressure. For many businesses, the financial "relief" is really just a neutraliser for the added tax costs. And for larger employers, there's little relief at all.

It’s another example of how small policy tweaks, though well-intentioned, often add complexity to an already tangled tax landscape.

Who's Eligible for Employment Allowance in 2025?

From April 2025, most employers will be eligible, thanks to the removal of the £100,000 threshold. Here’s a quick checklist:

You must be a registered employer.
You must employ staff (i.e., not just one director).
You can be a business, charity, or community amateur sports club.

But—as always—there are some important exceptions…

Who’s NOT Eligible?

Even with the widened criteria, some groups are still excluded:

Single-director companies with no employees won’t qualify unless two directors earn above the secondary threshold (£5,000 in 2025).
Domestic employers, such as those hiring nannies or carers, aren’t eligible.
Off-payroll workers (IR35 contractors) don’t count toward eligibility.
Public sector employers, unless they are charities or meet specific conditions.
Northern Ireland businesses involved in manufacturing or selling goods must be mindful of de minimis state aid rules.

How to Claim Employment Allowance

Good news: claiming is simple and integrated into your regular payroll process.

Here’s how:

Submit your claim through your payroll software by ticking ‘Yes’ on the Employment Allowance indicator in your Employer Payment Summary (EPS).
If your software doesn’t support this (rare these days), you can use HMRC’s Basic PAYE Tools.
You can claim at any point during the tax year and start applying the allowance immediately.
If your claim is rejected, HMRC will notify you within five working days.

If you become ineligible later in the year, update your EPS to ‘No’ to avoid penalties.

Can I Claim for Previous Years?

Yes—but only for the past four tax years. You'll need to submit a separate EPS for each year, and be sure you met eligibility requirements at the time.

Here’s a quick breakdown of the historic maximum allowances:

2014/15: £2,000
2016/17: £3,000
2020/21: £5,000
2025/26: £10,500

Double-check you’re not over-claiming for any particular year, and keep those records handy—HMRC expects you to hang onto documentation.

Final Thoughts: Navigating a Shifting Landscape

The 2025 changes to Employment Allowance and employer NICs are a perfect example of how tax policy can give with one hand and take with the other. For small businesses, there’s some genuine relief—but it’s largely about keeping you from feeling the full sting of the NIC hike. For larger employers, there’s little comfort to be found.

What’s clear is this: keeping accurate records and staying proactive about your payroll setup has never been more important.

If you’re unsure how these changes might affect your business specifically, or you want help forecasting your payroll costs for the new tax year, get in touch—we’re here to help you make sense of it all.

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