Employment allowance and NIC changes made simple

How the Spring statement could affect freelancers & contractors

The UK government’s Spring Statement is coming up, and freelancers, contractors, and consultants need to know how it might affect their businesses. Some big changes in the 2024 Autumn Budget were announced about employment allowance and employers’ National Insurance contributions (NICs). These changes will start on 6th April 2025, and they could make a big difference to your finances.

Accrue is here to help you understand these changes and what they mean for you. Let’s break it all down in a way that’s easy to understand.

Employment allowance – key takeaways for freelancers and contractors

• Employer’s National Insurance rate is going up: From 6 April 2025, the rate will increase from 13.8% to 15%.
• Lower NIC threshold: Employers will start paying NICs on salaries above £5,000 (instead of £9,100).
• Employment allowance is increasing: It is going up from £5,000 to £10,500, but not everyone will qualify.
• Single-director limited companies: If you’re the only director and don’t have any employees, you won’t be able to claim it.

What is Employment allowance?

This is a government scheme that helps small businesses, charities, and community amateur sports clubs (CASCs) reduce their National Insurance costs. It allows eligible employers to claim up to a certain amount each year to offset their employer NICs bill. Essentially, it’s a form of tax relief designed to support smaller businesses and encourage hiring. From April 2025, the allowance will increase to £10,500, making it even more valuable for those who qualify.

What’s changing with employers’ NICs?

National Insurance contributions are a tax that helps pay for things like the State Pension and other benefits. If you’re a freelancer or contractor running your own limited company, you’re both the employer and the employee. This means these changes could affect how much tax you pay and how much money you take home.

Right now, employers pay 13.8% NICs on employee earnings above £9,100 per year. From April 2025, this threshold will drop to £5,000, and the rate will go up to 15%. This means you’ll start paying NICs sooner and at a higher rate, which could make things tighter for your business.

Employment allowance: what’s new?

To help with the higher NICs, the government has said that the employment allowance will increase from £5,000 to £10,500 per year. This allowance can help reduce your employer NICs bill, but not everyone can claim it.

Who can claim employment allowance?

• Limited companies with employees: If you have at least one employee (other than yourself) earning above the NIC threshold, you might be able to claim it.
• Charities and community sports clubs: These organisations can also claim it.
• Connected companies: If you’re part of a group of companies, only one company in the group can claim it.

Who can’t claim employment allowance?

• Single-director limited companies with no employees: If you’re the only director and don’t employ anyone else, you won’t qualify.
• Public sector businesses: Companies that do more than 50% of their work in the public sector can’t claim it (unless they’re a registered charity).

What does this mean for freelancers and contractors?

If you’re a sole director with no employees, these changes could mean you’ll have to pay more. However, if you employ staff or are thinking about hiring someone, the increased employment allowance could help reduce your NICs bill.

Here are some examples to help you understand:

1. Sole director with no employees:
   • You won’t be able to claim employment allowance.
   • Your NICs will go up because of the higher rate and lower threshold.
2. Director with employees:
   • If you have at least one employee earning above the NIC threshold, you might qualify for employment allowance.
   • The increased employment allowance could help lower your overall NICs bill.
3. Thinking about hiring someone:
   • If you take on an employee, you might be able to claim employment allowance, which could save you up to £10,500 per year.

How to get ready for the changes

1. Check if you qualify: Find out if your business can claim employment allowance. If you’re not sure, ask an accountant for help.
2. Plan for higher costs: If you’re a sole director, make sure you budget for the higher NICs in the 2025/26 tax year.
3. Think about hiring: If you’ve been considering hiring someone, now might be a good time to do it, as it could make you eligible for employment allowance.

Final thoughts

The changes to NICs and Employment Allowance are a bit of good news and bad news for freelancers, contractors, and consultants. While the increased Employment Allowance is great for businesses with employees, sole directors might have to pay more.

Accrue is here to help you understand these changes and make the best decisions for your business. If you have any questions about how the Spring Statement could affect you, just get in touch with our team.

What’s next?
Keep an eye out for more updates after the Spring statement is announced. In the meantime, take a look at our other resources like our salary calculator for freelancers and contractors, or contact us for advice that’s tailored to your business.