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

Welcome to I Hate Numbers.

This is the podcast that makes your business

and finance less scary and more profitable.

I'm Amud accountant, tax advisor, business

coach, and author of the book of the same name.

I hate numbers.

Now I wanna start this podcast with a question.

Are you a sole single director of your

own limited company?

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, it's essential listening.

In this episode, I'm gonna be diving into how

single director companies can claim what's called

the employment allowance.

With a bit of a clever judicious planning, you

could save your company a bit more than small

change, potentially 1100 pounds plus in employees

national insurance.

In the podcast, I'm gonna 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 employer's national insurance, how you should

stay legal and compliant.

We all want that, and the mistakes

you need to avoid.

And next steps.

Let's crack on.

Now, let's start with some base numbers here.

Now, from the 6th of April, 2025, the

employer's national insurance rate jumped

from 13.8% to a nice eye walling, 15

percentage points.

Now added to 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.

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 is order 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 employers national

insurers contributions much earlier than

you did before.

Not only will you be paying it earlier,

but you'll also be paying it potentially

at the higher rates.

I. 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

now got a national insurance contribution

bill of 225 pounds.

Now it's important to emphasize here folks,

we're talking about the employer's ash insurance,

not the employee's NASH 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 optimize

tax savings, 12 5 70, then your bill is

gonna go up to about 1,130 pounds unless you

actually qualify for the employment allowance.

So on 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 one.

National Insurance Bill.

Now, apologies for throwing in these

terms like Class one, class two.

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.

The employer slash 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.

They're wise and take action now.

Here are the two options available to

you to legally and with good conscience,

not pay the employee's 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, four weeks work.

And that meets the qualifying rule.

Obviously you've got to pay them and obviously

you've gotta 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.

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 gonna hire somebody,

make sure there's actually real work

that's gonna be done.

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 planner legitimately

for some admin support, maybe helping with

social media, doing some of your bookkeeping.

You could ask a family member to help you.

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.

Here's the second option.

Option two, you resign as a director.

Uh, 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 I. You are

excluded from the rules.

So think about changing the way you

structure the business.

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, make sure

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.

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 gonna 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.

So your company pays you a salary of 12 570.

If you were unable to claim the employment

allowance, that would be an employer's national

insurance bill of 1,135 pounds and some pennies.

If you do claim the allowance that

disappears, it's wiped out perfectly illegally.

And that's quite a saving.

The rent allowance also will boost the

money that you have in your business.

Yes, you'll pay a little bit more tax, but

depending how big your company is here, your

tax rates, you're gonna 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.

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 aren't 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 HRCs.

EPS service, which stands for employment

Payment Summary.

You've gotta keep your employment contracts

and payslips store, your meeting notes, your board

minutes if you change to access 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 costing for you in the long run.

Now, as do most things in life,

mistakes can be made.

So I'm just gonna 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 'cause

you're a single director.

Now, check carefully, speak to your accounting

or advisor, and a small payroll tweet can unlock

the allowance for you.

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.

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.

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 sounds

confusing, don't worry.

This is what we're here to help you with.

Again, if you don't have advisory support, I. Then

check out the show notes.

Give us a call.

I've also, in the show notes, hereby they'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.

So that's a, a nice little brucey bonus

for you as well.

Now, if this episode has helped you see

the savings hiding in your payroll, don't

keep it 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 rather Contact usPage@ihatenumbers.co.uk.

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Stay savvy, stay cash smart.

Plan it.

Do it.

And profit.