The Employment Allowance allows certain businesses who employ workers to reduce their annual National Insurance (NI) bill by up to £5,000 (for the 2024/25 tax year).

You’ll pay less employers’ Class 1 National Insurance each time you run your payroll until the £5,000 has gone or the tax year ends (whichever is sooner).

You can only claim against your employers’ Class 1 National Insurance liability up to a maximum of £5,000 each tax year. You can still claim the allowance if your liability is less than £5,000 a year.

The Employment Allowance applies to smaller businesses only. Businesses with an Employer NI bill of £100,000 or more in the previous tax year will not be able to claim the allowance.

Employer NI is typically charged at 13.8% in the 2024/25 tax year (same in 2023/24). Each year the rates can be checked on the .gov website. 

Example

A business may employ someone with an annual salary of £22,000. They will incur Employer NI of £1,780.20 per year, if you are eligible and claim employment allowance you will not pay this charge.

By comparison, an employee paid £46,000 per year will generate £5,092.20 in Employer NI per year. By using the Employment Allowance, the first £5,000 can be written off, leaving £92.20 payable for the tax year.

Note that Employer NI above £5,000 will only be paid once the Employment Allowance has been exhausted, so in the example above you would pay no Employer NI for the first eleven months of the tax year, £92.20 in the twelfth month. Imagine the difference this will make to your business. 

The Employment Allowance is a £5,000 allowance per business, not per employee.

You can’t claim if you’re a company with only one employee paid above the Class 1 National Insurance Secondary Threshold (£9,100 for the 2024/25 and 2023/24 tax year) if that employee is also a director of the company.

Most self-employed freelancers and contractors (sole traders who pay Class 2 and Class 4 National Insurance) can’t use the allowance as they don’t pay Class 1 NI

If you are unsurewhether you can claim employment allowance get in touch and we can discuss your payroll. Currently, you are allowed to claim backdated employment allowance for up to 4 previous tax years so you could be eligible for up to £20k if your business is eligible and has not been claimed. This could change at anytime and you would be clarified on the .gov website. 

At Completely Payroll Limited we would automatically check whether our customers are eligible and ensure they are claiming any relevant allowance they are entitled to.

Email fiona@completelypayroll.co.uk if you would like to discuss your payroll requirements.

Written 10th September 2024