Employers often look for ways to cut overheads without compromising on talent or resources. One effective method is the employment allowance. This offers eligible businesses the chance to reduce employer Class 1 national insurance contributions (NICs). The allowance is currently set at £5,000 for the 2024/25 tax year.
Our work with creative, digital and media businesses shows how valuable this relief can be. According to HM Revenue & Customs (HMRC), more than one million employers in the UK benefit from the employment allowance each year. This figure demonstrates its broad appeal. It can give smaller organisations, especially those in fast-paced sectors like technology or content creation, some breathing space when it comes to reducing payroll costs.
Below is a clear look at how you can claim the allowance. This includes eligibility details and a step-by-step approach to applying.
What is employment allowance
Employment allowance is a government initiative that aims to help eligible businesses reduce their annual employer NICs. You can claim up to £5,000 off your bill across the tax year. When your total employer NICs reach this allowance, you start paying contributions as normal again.
It suits various businesses, including limited companies and charities. There are a few important rules around eligibility, which we cover below.
Who can claim
You can claim if you are a business or charity that pays Class 1 employer NICs on your employees’ or directors’ earnings. There are, however, restrictions that affect certain groups. You cannot claim if:
- you are the director and the only employee on the payroll
- your employees carry out functions within the public sector that fall under specific rules (for instance, NHS services or certain local council services)
- you exceed the de minimis state aid limits if you are operating in an industry covered by state aid regulations, such as agriculture or fisheries.
You should check the HMRC guidance on employment allowance eligibility if you are unsure. There are clear examples there to help confirm your status.
Key figures for 2024/25
The allowance remains at £5,000. This means your employer NIC contributions can be reduced by up to £5,000 throughout the tax year. For many small and medium-sized firms, this can be a significant boost.
The threshold at which employer Class 1 NICs become payable is also vital. Although government announcements sometimes change these thresholds, you will usually begin paying employer NICs on each employee’s earnings above £9,100 per year. This threshold was in place for the previous tax year and is expected to remain for 2024/25 unless stated otherwise by HMRC.
Step-by-step guide to claiming
1. Check your software
If you use payroll software, ensure it supports claiming employment allowance. Most modern systems do, but you may need to activate a function that tells HMRC you are claiming. This is often a simple setting in your payroll module.
2. Confirm eligibility
Make sure you satisfy all criteria. You cannot claim if you are operating within a limited company where the sole employee is also the director, or if you breach any of the other eligibility rules. If you are confident you qualify, proceed to the next step.
3. Submit your claim
You can claim through your payroll software, or you can use HMRC’s basic PAYE tools. Your payroll software will prompt you to indicate that you are eligible and want to apply the employment allowance to your employer NICs. The software then adjusts the amount of NICs you pay in each subsequent submission.
4. Record-keeping
Keep evidence of how you have assessed your eligibility. This could include notes on your business structure or turnover, as well as details of any employees’ earnings. If HMRC challenges your claim, good records will make your position clear.
5. Report on your EPS
Each time you run payroll, your employer payment summary (EPS) will show how much of the allowance you have used. Monitor this to ensure you do not exceed the £5,000 cap. Once you have offset the full allowance, you will return to paying your normal NIC contributions.
Common misunderstandings
Some employers believe that they only need to claim employment allowance once. That is not always correct. You have to declare eligibility each tax year to continue receiving the allowance. Failing to do so can result in missed relief and higher national insurance bills.
Another misunderstanding is about claiming the allowance if you become eligible partway through the tax year. You can still claim, but you will only apply the allowance to the months that follow once you have updated your payroll records. You cannot go back and apply it to previous months in the same tax year.
Why it matters for digital, creative and media businesses
Digital, creative and media firms often need to recruit highly skilled staff who can develop content, code software or manage online campaigns. Budget allocation can be a balancing act, especially for startups or growing agencies. The employment allowance can free up resources for research and development (R&D), marketing or critical staff training.
It can also smooth out cashflow pressures. Employers can manage monthly outgoings more effectively and plan for new projects. This is especially helpful where project-based work and fluctuating client demands create an unpredictable revenue stream.
Additional resources
There is further guidance on the Companies House website if you are looking to structure your business in a way that keeps you eligible. We also offer advice on a range of topics that affect your business finances, including digital bookkeeping and R&D tax relief. You can read more on our FMA Accountants blog.
We have worked with clients to streamline their payroll processes and reduce unnecessary outgoings. Our team uses accounting software that synchronises real-time data, so you can see the impact of your employment allowance claim straightaway. If you would like to learn more, please visit our services page to see how we can help.
Final thoughts
The employment allowance is a practical option for reducing your national insurance bill. It makes a difference to annual budgets and helps employers of all sizes. The application process is straightforward, provided you confirm eligibility. If you manage this consistently, you will get the most out of the relief each year.
Speak to us if you want tailored support on employment allowance. We can walk you through the process and guide you on other reliefs that may benefit your business.
