How Employment Allowance changes could impact your business in 2025

Staying up to date with Employee Allowance (EA) changes can help your business to better prepare for payroll costs and avoid unexpected charges. With new updates coming into effect from April 2025, it is important to take a closer look at how these changes may impact your business and how you can make the most of the support available.

In this guide from QuickBooks, we explain what Employment Allowance is, how it is changing in 2025, and how to claim it.

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How is Employment Allowance changing in 2025?

From April 2025, Employment Allowance will increase significantly from £5,000 to £10,500 per year, meaning eligible businesses will be able to reduce their employers’ National Insurance (NI) liability by up to £10,500 in the 2025/26 tax year. 

In addition to this increased allowance, the government is removing the current eligibility cap based on your total NI liability. Previously, only businesses with an employers’ Class 1 NI liability of less than £100,000 in the previous tax year could claim EA, however, from April 2025 this limit will no longer apply.

These changes were announced in the October 2024 Budget, and are part of a broader set of measures aimed at easing the cost of employment for smaller businesses.

How will these changes affect businesses?

The impact of these updates will depend on the size of your business, and how your payroll system is structured. These changes may help your business manage payroll-related costs more effectively, especially during a period of economic volatility. 

Particularly for smaller sized businesses, you may be able to offset a number of costs that would previously have been a financial burden. The new Employment Allowances may help your business in the following ways:

More businesses will qualify

Removing the £100,000 NI threshold means that businesses with larger payrolls, who were previously excluded, may now be eligible to claim.

Greater tax relief

The increased allowances of £10,500 can significantly reduce NI liabilities for eligible employers, freeing up funds to reinvest in growth, recruitment, or training.

Offsetting rising costs

From April 2025, employers’ NI contributions will rise from 13.8% to 15%, and the secondary threshold will drop from £9,100 to £5,000. These changes mean a higher NI bill for many employers, but the updated EA may help to offset this balance.

When do these changes come into play?

The changes to Employment Allowance will come into effect from the 6th of April 2025, at the start of the 2025/26 tax year, which is the same date that other payroll systems update such as the increased employer National Insurance rate and the reduced secondary threshold.

If you are already claiming Employment Allowance, the increased amount will apply automatically from this date provided you continue to meet the eligibility criteria. If have not claimed before or were previously ineligible due to the £100,000 cap, April 2025 is the time to review your status and submit a new claim if you now qualify.

In preparation for these changes, your business should:

• Audit your current NI liabilities to estimate the impact of changes

• Update your payroll software or speak with a payroll provider to ensure systems are ready.

• Plan ahead for the transition so you can benefit from the full allowance as early as possible in the tax year.

By taking proactive steps you can make a noticeable difference to your cash flow in the months ahead.

Employment Allowance explained

Employment Allowance is a government initiative aimed at reducing the financial burden of employing staff, allowing eligible employers to claim a reduction on their annual Class 1 National Insurance bill. 

The allowance is applied against the employer’s share of NI contributions, not the employee’s, and can offer substantial savings over the course of a tax year. For 2024/25 the employee allowance was set to £5,000, however, from April 2025 this will increase to £10,500, making it even more valuable for smaller businesses and charities.

You should note that Employment Allowance is applied at the business level, not per employee, so even if you run multiple payrolls or have several subsidiaries, you can only claim against one PAYE scheme per employer. Once allowance has been used up, any remaining NI contributions for the year must be paid as usual.

Businesses stand to benefit significantly from April 2025 onwards, as the government is removing the £100,000 NI cap that previously limited eligibility. This means that larger organisations with higher payroll costs could now be entitled to claim for the first time. 

For example, a business or organisation that previously had an employer NI bill of £120,000 would have been ineligible. From April 2025, that restriction will no longer apply.

Ultimately, Employment Allowance is designed to ease the cost of employing staff, particularly for smaller enterprises and third-sector organisations, and can free up resources for hiring, staff training, or reinvestment in core services.

How can businesses claim Employment Allowance?

Claiming Employment Allowance is a relatively straightforward process, especially if you are using payroll software that supports Real Time Information (RTI) submissions. You can make a claim at any point during the tax year, either through your existing payroll software or by using HMRC’s free Basic PAYE Tools.

The first step is to confirm your eligibility. As of April 2025, businesses must still have had an employers’ Class 1 NI liability of less than £100,000 in the previous tax year. Charities, on the other hand, will no longer be subject to this cap. 

Once eligibility is confirmed, you’ll need to update your Employer Payment Summary (EPS). If you’re using payroll software, this typically involves ticking a box or setting a flag to indicate that you’re claiming Employment Allowance. 

The software will then handle the rest, reducing your NI payments automatically until the full allowance is used up. If you're using Basic PAYE Tools, you’ll need to manually update your employer details before submitting your EPS.

It’s also important to keep accurate records of your claim. HMRC requires employers to retain supporting documentation for at least three years. This might include payroll reports, correspondence confirming your eligibility, or internal calculations showing how the allowance was applied.

If your business was previously eligible but didn’t make a claim, you can still backdate Employment Allowance claims for up to four previous tax years. For instance, if you qualified in the 2021/22 tax year but missed the opportunity to claim, you can submit a separate EPS for that year and potentially recover thousands of pounds in NI savings. 

How can businesses make payroll easier?

Running payroll can be complex, especially when legislation is updated, thresholds change, or new allowances are introduced, such as the increase in Employment Allowance in 2025. Without the right systems in place, businesses risk missing out on valuable savings or making costly compliance mistakes.

Using dedicated payroll software can dramatically simplify this process by automating calculations, reducing admin time, and helping employers stay on top of key dates and reporting requirements. 

With QuickBooks Payroll, for example, National Insurance and Employment Allowance calculations are updated automatically in line with HMRC guidelines, so you won’t need to manually adjust figures after the April 2025 changes come into effect.

QuickBooks’ software also enables you to submit Real Time Information (RTI) directly to HMRC, track how much of your Employment Allowance has been used, and receive alerts before important payroll deadlines. This ensures your business stays compliant and avoids penalties for late submissions or underpayments.

Let’s say you’re a small business owner managing a team of ten. Each month, you need to calculate gross pay, deductions, NI contributions, and ensure the correct amount is paid to HMRC. On top of that, you’re trying to claim Employment Allowance and submit your EPS. 

Doing all of this manually or through spreadsheets increases the risk of error. With payroll software like QuickBooks, much of this work is handled automatically, giving you peace of mind and more time to focus on running your business.

Whether you’re adjusting to the latest tax year changes or simply looking for a more efficient way to manage payroll, having the right tools in place can make all the difference.

Stay compliant and save time with QuickBooks Payroll. From automatic NI calculations to real-time tracking of your Employment Allowance, we make it easy to stay on top of changes in 2025 and beyond.

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