From April 2025, there will be significant changes to Class 1 (Secondary) Employer’s National Insurance Contributions (NICs):
• The Employer’s NIC rate will increase from 13.8% to 15%.
• The Employer NIC threshold (the salary above which Employer’s NIC is payable) will drop from £9,100 to £5,000 per year.
Employment Allowance
Employment Allowance (EA) increases from £5,000 to £10,500 from April 2025.
Eligible companies can claim up to £10,500 in Employment Allowance, which means they won’t have to pay Employer’s National Insurance contributions until the allowance is fully used.
Impact on Companies with Only One Director
Companies with a sole director and no additional employees are not eligible for the £10,500 Employment Allowance. As a result, they will pay more Employer’s NIC from 2025/26.
For example, if a sole director takes a salary of £12,570 per year (to fully use their Personal Allowance):
• In 2024/25, they would pay £478.86 in Employer’s NIC.
• In 2025/26, this increases to £1,135.50 – an extra £656.64 per year.
Despite this increase, taking a salary of £12,570 remains the most tax-efficient strategy for those wanting to fully utilise their Personal Allowance and reduce Corporation Tax.
Companies Eligible for Employment Allowance
Companies with at least two directors can claim the £10,500 Employment Allowance so long as both the directors receive a salary equal to or above the Class 1 secondary NIC threshold.
A single director company that employs at least one other (non-director) employee is eligible to claim Employment Allowance, so long as the other employee receives a salary equal to or above the Class 1 secondary NIC threshold.
If a company has only one director and no other employees at the start of the tax year, it cannot claim the Employment Allowance. However, if the company hires another employee during the year who earns above the secondary NIC threshold, the company becomes eligible for the full Employment Allowance. This allowance can be used to offset employer’s Class 1 NICs for both the director and the employee, provided they both earn above the threshold. If the employee leaves before the end of the tax year, the company can continue using any remaining allowance against the director’s NICs until it’s fully used or the tax year ends — whichever comes first. In the following tax years, the company will not qualify for the allowance again unless it hires at least one non-director employee who is paid enough to trigger employer’s NICs.
Companies Not Eligible for Employment Allowance
As discussed above, a single director company with no other employees is not eligible to claim Employment Allowance.
Similarly, a company with two or more directors with no other employees where only one director receives a salary equal to or above the Class 1 secondary NIC threshold is not eligible to claim the Employment Allowance.
Comparison Table: Employer’s NIC Costs for 2024/25 vs. 2025/26
| Scenario | Employer NIC Rate | Employers NIC Threshold | Employer NIC Payable (2024/25) | Employer NIC Payable (2025/26) |
Extra Cost from 2025/26 |
|---|---|---|---|---|---|
| 1 Director Only (£12,570 salary) | 13.8% | £9,100 | £478.86 | £1,135.50 | +£656.64 |
| 2 Directors or 1 Director and 1 Employee (£12,570 each) | 13.8% / 15% | £9,100 / £5,000 | £0 (EA covers NIC) | £0 (EA covers NIC) | No change |
Key Takeaway
For companies not eligible for Employment Allowance, Employer’s NIC will apply, but a £12,570 salary remains the most tax-efficient way to fully use the Personal Allowance. For companies that can claim Employment Allowance, there’s no Employer NIC to pay (up to £10,500), making the £12,570 salary even more advantageous.
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