Reducing employer National Insurance by up to £10,500 per year through Employment Allowance can be a huge support for many businesses. However, not every company qualifies, and one person director companies are excluded.
What Is the Employment Allowance?
Employment Allowance allows eligible businesses and charities to reduce their employer Class 1 National Insurance contributions each year. The allowance is claimed through payroll using the Employer Payment Summary and is applied against the employer’s NI bill each time payroll is run until the allowance is fully used or the tax year ends.
Who Qualifies?
From 6 April 2025, the previous restriction that excluded employers with more than £100,000 Class 1 NI liability in the prior tax year has been removed. Now, all employers can apply, regardless of the size of their NIC bill.
However, a single director company cannot claim if the only person paid above the Secondary Threshold is a director. This rule continues to apply.
What About Companies With More Than One Employee?
If at least one other employee or a second director is paid above the Secondary Threshold, the company is not classed as a single director company. In this case, Employment Allowance can be validly claimed through payroll. Once this condition is met, the allowance applies for the whole tax year.
Why Does This Matter?
For many small companies run by sole directors, Employment Allowance is simply not available. This often comes as a surprise, as it is easy to assume all small businesses qualify. But the rules are strict, and incorrect claims risk HMRC penalties.
Planning Considerations
Although one person director companies cannot claim Employment Allowance, other tax efficient strategies are available. These may include structuring salary and dividends efficiently, employing additional staff where commercially viable, or making use of other reliefs and allowances available to small companies. Because every business is different, tailored advice is essential.
Final Thoughts
Employment Allowance offers valuable savings of up to £10,500 per year for eligible employers, but the rules must be understood. One person director companies are excluded, while businesses with additional staff can benefit. With careful planning, liabilities can be reduced and opportunities maximised.
At Cobble, we support directors and small business owners in navigating Employment Allowance and other reliefs. Our advice ensures companies are structured tax efficiently and make the most of every opportunity.