Employment Allowance Changes in 2025: What Your Business Needs to Know
From April 2025, significant changes to Employment Allowance (EA) will come into effect.
These updates, announced in the October 2024 Budget, could impact thousands of UK businesses by altering how much support they receive towards their National Insurance (NI) liabilities.
Understanding these changes is key to managing payroll costs effectively and ensuring your business continues to meet its tax obligations without unnecessary expense. In this blog, we explain what is changing, how it could affect your business, and what steps to take now.
What is Employment Allowance?
Employment Allowance is a government initiative designed to help eligible employers reduce their annual Class 1 National Insurance liability. It is applied at the business level, meaning only one claim can be made per employer, regardless of how many payroll schemes are in operation.
As of the 2024/25 tax year, the allowance stands at £5,000. From 6 April 2025, this figure will more than double to £10,500. The change forms part of wider government measures aimed at easing the cost of employment for smaller and growing businesses.
What is Changing in April 2025?
There are two key updates:
Increased allowance: From April 2025, eligible employers will be able to reduce their NI liability by up to £10,500 per year.
Removal of the eligibility cap: The current cap excludes businesses with a Class 1 NI liability of £100,000 or more in the previous tax year. From April 2025, this restriction will be lifted, making more businesses eligible to claim.
These updates coincide with changes to employers’ NI contributions. The rate will increase from 13.8 percent to 15 percent, and the secondary threshold will fall from £9,100 to £5,000. While this results in a higher overall NI bill, the increased allowance may help offset these additional costs.
Who Will Benefit?
The changes are expected to benefit a broader range of employers, particularly:
Small to medium-sized businesses: These businesses may see a substantial reduction in NI costs, improving cash flow and supporting investment in staff or growth.
Larger employers: Organisations previously excluded due to the £100,000 cap may now be able to claim for the first time.
Charities and third-sector organisations: These groups stand to gain from both the increased allowance and broader eligibility criteria.
What Should You Do Now?
To ensure your business is ready, we recommend the following steps:
Review your National Insurance liabilities: Understand how much you are currently paying and what the impact of the new rates and thresholds will be.
Check your eligibility: Even if you were previously excluded, the new rules may now allow you to claim.
Update your payroll systems: Whether you use software or an external provider, ensure systems are ready to apply the allowance from the start of the tax year.
Keep accurate records: HMRC requires businesses to retain documentation supporting EA claims for at least three years.
How to Claim Employment Allowance
Claims can be made through most payroll software or using HMRC’s Basic PAYE Tools. You can apply at any point during the tax year. If eligible, your NI liability will be automatically reduced until the full allowance is used.
If your business has been eligible in previous years but did not claim, you may still be able to make a backdated claim for up to four years. This could result in significant NI savings.
Final Thoughts
The upcoming changes to Employment Allowance represent a valuable opportunity for businesses to reduce payroll costs in a challenging economic environment. However, with changes also arriving in NI rates and thresholds, planning ahead is essential.
At Zyla Accountants, we are here to help you assess your eligibility, update your payroll systems, and make the most of the support available. If you are unsure how these changes apply to your business, contact us today for tailored advice.