Single Director? Here’s How to Claim the 2025 Employment Allowance

:: 00:00

Welcome to I Hate Numbers. This is the podcast that makes your business and finance less scary and more profitable. I'm Mahmood, an accountant, tax advisor, business coach, and author of the book of the same name, I Hate Numbers. Now I want to start this podcast with a question. Are you a sole single director of your own limited company?

:: 00:20

Do you follow that typical pattern of paying yourself a small salary and do you want to save tax? And by tax savings, we're talking about National Insurance Contributions. If yes, then sit back, relax. Today's episode is essential listening. In this episode, I'm going to be diving into how single director companies can claim what's called the employment allowance.

:: 00:40

With a bit of a clever judicious planning, you could save your company a bit more than small change, potentially 1100 pounds plus in Employers’ National Insurance. In the podcast, I'm going to cover National Insurance and the increasing cost to you as an employer, what the employment allowance is, the two options you have to legally avoid paying the Employers’ National Insurance, how you should stay legal and compliant,

:: 01:04

we all want that, and the mistakes you need to avoid, and next steps. Let's crack on.

:: 01:17

Now, let's start with some base numbers here. Now, from the 6th of April, 2025, the Employers’ National Insurance rate jumped from 13.8% to a nice eye- watering 15 percentage points. Now add into that, something called the secondary threshold dropped as well. Now that secondary threshold is a technical term describing the point when Employers’ National Insurance kicks in.

:: 01:42

It used to be a figure of 9,100, and that typically was a reference point for the amount that employees should pay themselves, and it dropped to 5,000 pounds a year. That's equivalent to about 96 pounds a week, or if you want it in monthly terms, 417 pounds per month. So what does that actually all mean? It means that now from 6th of April, 2025, you'll start paying the Employers’ National Insurers Contributions much earlier than you did before.

:: 02:10

Not only will you be paying it earlier, but you'll also be paying it potentially at the higher rates. Now the threshold, if you pay yourself a salary of say, six and half thousand, which is both smart for state pension purposes, and I'll explain why so in a moment, and state benefit, you’ve now got a National Insurance Contribution bill of 225 pounds.

:: 02:30

Now it's important to emphasise here folks, we're talking about the Employer's National Insurance, not the Employee's National Insurance. That has remained unchanged from the sixth or April, 2025. Now, if you want to go for what most people say is the recommended salary limit to optimise tax savings, 12,570, then your bill is going to go up to about 1,130 pounds unless you actually qualify for the employment allowance.

:: 02:55

So what on Earth is this allowance I've referred to? Now, the employment allowance is a government scheme, which says that if you are an employer and you are eligible, you meet the criteria, you get an allowance to offset and reduce your secondary Class 1 National Insurance bill. Now, apologies for throwing in these terms like Class 1, Class 2.

:: 03:13

These are categories of National Insurance. They still live with us, so it's useful to know what they refer to. Now for the 25-26 tax year, the allowance moved from five grand and it's actually worth 10 and a half thousand pounds. Now what that means is if it's you plus potentially other people who are working with you,

:: 03:32

The Employers’ National Insurance can be waived up to 10 and a half grand. Now that's great, but there's a catch, isn't there always? You can't claim this allowance if you happen to be the only employee in your business and you are also the company director. That means for a lot of clients that we look after, a lot of people that I know, a lot of people who run their companies, they're single directors and they get Jack, they get absolutely nothing unless

:: 03:56

they're wise and take action now. Here are the two options available to you to legally and with good conscience, not pay the Employers’ National Insurance. Option one, you hire somebody else. Now the employee doesn't have to be full-time. You don't need to pay them a fortune. You need to pay them 97 pounds for a week’s work.

:: 04:16

And that meets the qualifying rule. Obviously you've got to pay them and obviously you've got to make sure you don't breach minimum wage regulations. Now, once you meet that criteria, and that's one week's work, that's enough to create an employer's NIC liability. And once that happens, you open the door to claim the allowance.

:: 04:35

The key criteria now is you've got a director plus an employee and therefore you can claim that allowance. Now, let's be smart and let's be sensible. Don't mess around by making up things. Don't fake it. HMRC will be aware of this regulation rule and they can sniff that out. So if you are going to hire somebody, make sure there's actually real work that's going to be done.

:: 04:57

Now, this could be a number of things. It could be during the quiet time, during the summer period when students are on a break, bringing the student to help you. You could pay your partner legitimately for some admin support, maybe helping with social media, doing some of your bookkeeping. You could ask a family member to help you.

:: 05:13

That's all above board. It's all perfectly legal, and that means you trigger in that saving around about 1100 pounds plus per annum. That's certainly enough to buy a few lovely meals, put it towards your holiday, reinvest it in your business. You decide what you do with that. And I said, there are two options.

:: 05:30

Here's the second option. Option two, you resign as a director. Now, it doesn't mean you leave the business. We're talking about a director status. Now, if you are the only director in your business and the only employee, you are excluded from the rules. So think about changing the way you structure the business.

:: 05:46

You step back as a director, you appoint somebody you trust, your spouse, your partner in your place, and now you become an employee, but not actually a director. Now that simple switch makes your company eligible. There aren't any fake jobs, no new hires. You need to update Company's House, log the decision with board minutes, and if you need help with that, with the paperwork, make sure you've got that supporting paperwork,

:: 06:09

our sister company Numbers Knowhow offers company secretarial support to help you stay compliant and to actually do that paperwork for you. Now, we're not going to get tied up in the messy rules of shadow directs here. We're making sure this is a legitimate change. Now what's the financial win? Well, let's throw some numbers into the mix.

:: 06:27

So your company pays you a salary of 12,570. If you weren’t able to claim the employment allowance, that would be an Employers’ National Insurance bill of 1,135 pounds and some pennies. If you do claim the allowance, that disappears. It's wiped out perfectly legally. And that's quite a saving. That allowance also will boost the money that you have in your business.

:: 06:49

Yes, you'll pay a little bit more tax, but depending how big your company is here, your tax rates, you're going to hover between 19 and 25%. You still get to keep about 80 to 75% of that money. You can reinvest it, take it out of the company by way of dividends, reward yourself, perhaps even take on more staff.

:: 07:08

Now, it's important that all of this is done legally and you make sure you keep on the right side of HMRC and the law. So proper records are vital. It's part of your obligation, but it's also good due diligence and housekeeping. Now use good payroll software. Make sure you work with your accountant, and you must submit your claim by something called HRMC’s

:: 07:29

EPS service, which stands for Employment Payment Summary. You've got to keep your employment contracts and payslips, store your meeting notes, your board minutes if you change directors and if required, you are able to show HMRC that everything is above board. If you don't have that record keeping, if you don't have that supporting evidence, that could be costly for you in the long run.

:: 07:50

Now, as do most things in life, mistakes can be made. So I'm just going to flag up the mistakes you need to avoid - the classic errors. The first one is that myth saying that you're not eligible to claim that allowance because you're a single director. Now, check carefully, speak to your accountant or advisor, and a small payroll tweet can unlock the allowance for you.

:: 08:08

Number two, making up the employment just to grab the allowance, pretending that you've taken on a member of staff when you actually haven't. A, that's very naughty, but B, it can land you into a lot of HMRC hot water. And thirdly, not claiming it in time. Now you can only claim for the current tax year.

:: 08:25

There are grounds sometimes are going back retrospectively, but if you wait too long, you lose out that financial claim. Now, what should be your next steps? Well, first of all, review your current payroll setup. If you don't understand where you are currently, you can't take action. Check if you require a second employee or if you could bring somebody on. Look at the options about restructuring the director setup.

:: 08:47

Submit your claim properly and on time. Now, if this sounds a little bit too much, you are on your own, doing this all yourself, it sounds confusing, don't worry. This is what we're here to help you with. Again, if you don't have advisory support, then check out the show notes. Give us a call. I've also, in the show notes, hereby I’ve got a link to a free, yeah, a free webinar we did on the changes in wage national insurance legislation from the 6th of April 25.

:: 09:14

So that's a, a nice little Brucie Bonus for you as well. Now, if this episode has helped you see the savings hiding in your payroll, don't keep it to yourself. Share it with those who you feel will benefit. Obviously I'd love it if you could leave a review and if there's anything we can help with, by all means folks, drop me a line, book a call via the Contact Us page at ihatenumbers.co.uk.

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