The Employment National Insurance Allowance Increase – All You Need To Know

National Insurance is one the main taxes that all employees, employers and self-employed workers have to pay. In basic terms, it’s a tax on earnings and self-employed profits which goes to the state, in order to be redistributed through state benefits to the public such as statutory sick pay, state pensions, maternity leave and unemployment benefits. Mandatory National Insurance has to be paid if you’re 16 or over and are either an employee earning above £184 a week, or self-employed and making a profit of £6,515 or more per year.

As an employer it is your duty to pay your fair share of National Insurance in addition to the National Insurance contributions provided by all your employees, which is automatically processed through PAYE. Because National Insurance is different to income tax, being that it isn’t an annual tax, it is based on earnings in accordance to how regular you are paid. If you earn more in one payday due to overtime or bonuses, your national insurance will therefore increase for that particular paycheck.

As of April 2014, the government introduced the Employment National Insurance Allowance scheme which entitles small businesses to reduce their National Insurance bill per year. In April 2020, that allowance was increased from £1000 to £4000 for all businesses, charities and community amateur sports clubs, eligible for the Employment Allowance whose Secondary Class 1 National Insurance Contributions liability is over £3,000 a year.

This means small businesses will pay less employers’ Class 1 National Insurance each time they run your payroll until the £4,000 has been exceeded or the tax year ends (whichever is sooner). Many businesses are unaware of this measure, essentially saving up £4000 each year. Here’s all you need to know on the scheme, why it came into effect and how to apply.

What Is The Employment National Insurance Allowance?

The Employment National Insurance Allowance is a scheme which enables certain businesses who employ workers, to reduce their National Insurance contributions by up to £4,000. The measure was introduced to help aid small businesses finding their feet. Because it only affects employers who pay Class 1 National Insurance, self-employed sole traders (who either pay Class 2 or Class 4 NI) are ineligible for the scheme. As well as this if you employ someone for domestic work such as a gardener or cleaner, or if you carry out more than 50% of your work in or for the public sector then you won’t be eligible for the allowance.

It’s also worth noting that your business’ total employers’ Class 1 National Insurance liabilities for the group must be less than £100,000. 

Who Is Eligible For The Employment National Insurance Allowance? 

HMRC considers an employer to be any any business who meets the following criteria:

  • You’re paying an employee at or above the PAYE threshold.
  • You’re paying the employee at or above the National Insurance Lower Earnings Limit.
  • The employee already has another job.
  • The employee is receiving a state, company or occupational pension.
  • You’re providing the employee with employee benefits.

Businesses do not qualify for the Employment Allowance if:

  • Your business is a single-person limited company and you’re the only employee.
  • Your business only employs company directors and doesn’t have two or more directors who earn above the secondary threshold.
  • Your staff carry out personal, household or domestic work.
  • You have more than one PAYE scheme running, or you have connected companies, in which case you can only claim the Employment Allowance for one.
  • Your business is a public body or does more than half of its work in the public sector. (businesses who provide security or cleaning services for a public building, or if supply IT services for a government department or council are still eligible).

As well as this, if your business or sell goods or services, Employment Allowance counts as ‘de minimis state aid’. There’s a limit to how much de minimis state aid you can get depending on your sector.

You must:

  • check that you’re within the de minimis state aid threshold
  • work out how much de minimis state aid you’ve received

De minimis state aid and the relevant thresholds are worked out in Euros over a 3 year period. Here are the breakdowns according to sector:

  • Agriculture products sector - €20,000
  • Fisheries and aquaculture sector - €30,000
  • Road freight transport sector - €100,000
  • Industrial sector/other – €200,000

Through PAYE payroll, due to payment going through the RTI (Real Time Information) process and are reported back to HMRC, the employment allowance should automatically be deducted. For a full breakdown of eligibility, please find a full list of breakdowns via the government portal page here.

Why Have The Government Increased The Employment National Insurance Allowance?

The government decided to increase the Employment National Insurance allowance to help small businesses cope with the pressures of tax bills.

In the policy paper for the scheme, HMRC state, “This measure supports businesses by providing relief of up to £4,000 on their employer secondary Class 1 National Insurance Contributions liabilities. This is expected to reduce around a further 65,000 businesses’ National Insurance Contributions bill to £0, and further allow small, growing enterprises to take on staff without incurring additional National Insurance Contributions liabilities. This is in addition to the 590,000 businesses whose National Insurance Contributions bill is effectively reduced to nil under the current level of the Employment Allowance.”

The aim of the Employment Allowance scheme was to have a positive and beneficial impact on business as HMRC go on to explain, “around 510,000 businesses eligible for the Employment Allowance and with Class 1 (Secondary) National Insurance Contributions liability over £3,000 a year by providing relief of up to £4,000 on their employer secondary Class 1 National Insurance Contributions liabilities. Businesses and civil society organisations who already claim the allowance through their payroll software will automatically receive the increased allowance, provided they remain eligible. Approximately a further 65,000 businesses and civil society organisations are expected to be taken out of employer National Insurance Contributions liability altogether.”

How To Apply For The Employment National Insurance Allowance?

If your company or firm uses the PAYE system for your employees and business, then all Employment Allowance reductions will be calculated automatically. If you wish to gain more information on the measure, whether it applies to your business and how to potentially claim back on reductions for previous years, check out the dedicated government portal page here.

We hope this has outlined to you exactly what the Employment National Insurance Allowance is and whether you are eligible. If you require any more information on any government schemes, loans and grants, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.

Beyond Accountancy

At Nordens, we're more than just accountants - we're business experts who can help you achieve your biggest goals.

Nordens Strategic

Our specialist strategic division at Nordens boasts some of the leading entrepreneurial business minds in the country. We cater towards delivering consistent success stories, whilst helping businesses achieve above and beyond their initial goals.

Through highly-tailored guidance, coaching and advice, Nordens Strategic are able to define exactly how your business can reach new levels of success.

Regardless of how you define ‘success’ for your business, our strategic service is guaranteed to bring about real and lasting change. By partnering with some of the UK’s top business coaches, we’ll steer you along the path to a greater future.

Accounting 2 You

Every business, no matter how big or small, needs to make the right decisions, and how to best manage your accounts can put huge question marks over your business. Accounting2You is here to take that pressure off and provide you with all the answers you need.

Our bookkeeping branch offers a fully inclusive, comprehensive service that you can trust. Since 2005, our specialist bookkeepers have been successfully managing the accounting of both individuals and small businesses.

With experts in payroll analysis, credit control and financial recording, Accounting2You will lead your business efficiently, and with real purpose, towards a prosperous future.

Voted as EXCELLENT - 9.9 out of 10 based on 167 reviews

Chris Dyer

Director - Metro Bank

Nordens are always very easy to deal with and extremely professional and efficient. I would have no hesitation in recommending them to my clients for their accountancy needs, no matter how complex they may be.

Read more reviews on Trust Pilot

Jamie Brown

Co-Founder - Chicmi Limited

Very good to work with - the team go above and beyond to make the accounts easy and efficient. They're all super friendly and a joy to work with.

Read more reviews on Trust Pilot

Simon Rose

Director - Rose Opticians

I have been using Nordens Chartered Accountants for 5 years and very happy with the service provided. All members of the team are very knowledgeable and have a wealth of experience which has proved very beneficial to my organisation

Read more reviews on Trust Pilot

Rebecca Bossick

Founder & Director - Physio LDN

Very easy to contact and put me in touch with the right person whenever I need to ask any questions. Extremely knowledgeable and can help me manage my various businesses whenever I need.

Read more reviews on Trust Pilot

James Aconley

Principal - Pauline Quirke Academy

Great accountants, always available to offer advice. The team have transformed my business.

Read more reviews on Trust Pilot

Christopher Wilce

Founder - Dataphone

Having worked with Nordens over the last 5 years, not only to look after my annual accounts but they have also provided outstanding professional advice. They have guided me through a Company share buyback with clear and objective advice. We have also been using Nordens strategic services for a couple of years, which has helped bring about significant improvements that exceeded my expectations. With experience of working with several local accountants over my 29 years in business, I’m very pleased with the service I have received from Nordens.

Read more reviews on Trust Pilot

Dave Hodges

Director - Linekers

Trusted our business with Nordens for over 10 years now and watched the company grow into the successful innovative business it has become today. Deservedly so. Every aspect of financial advice we need is always given promptly and with a smile. We have total confidence in all aspects of advice Nordens give. If you are looking for accountants, its a no brainer!

Read more reviews on Trust Pilot

Tony Charles

Founder - Foundation Sports Limited

A fantastic, modern, vibrant firm that care about the clients and their staff in abundance. It is rare to find an Accountancy firm with such vibrance and focus and relationships. It is no wonder they win award after award in their field.

Read more reviews on Trust Pilot

Peter Horlock

Managing Director - Prime Time Boilers

I have been with Nordens for many years now and they are a great accountants.

Read more reviews on Trust Pilot

Simon Cushing

Founder - Vivid Finishes

We have used Nordens for the last 5 years and have had a great service throughout. The guys are very passionate about what they do and have played a part in the growth of our company, highly recommended.

Read more reviews on Trust Pilot

Andrew Martin

Managing Director - AMD Interior Architecture

Great Service at Nordens from a friendly very approachable team Particularly Kirsty Willis and Joe Sword who have been helping us since we started the business in 2016.

Read more reviews on Trust Pilot

James Robinson

Director - Forma London

Nordens provide a first class service. We moved to Nordens last year and have been impressed with the level of service provided. Keep up the good work!

Read more reviews on Trust Pilot

Latest News

We've always got our ears to the ground when it comes to interesting, useful and topical information relating to business and accountancy.

How To Navigate An…
A volatile or unstable nation’s economy ultimately affects every person in that particular location. As the UK finds itself in hot water amidst supply chain issues, energy price increases and post-pandemic uncertainties, there ...
The Autumn 2021 Budget…
The Chancellor of the Exchequer, Rishi Sunak, will be carrying out his red briefcase and laying out his Autumn Budget plans on Wednesday 27th October 2021. The Autumn Budget doesn’t usually attract massive attention, however du...
Nordens TV

We love making videos that break down convoluted accountancy jargon into plain-talking, actionable and accessible facts.

Live Webinar – Time…
Watch our latest LIVE webinar titled ‘Time To Revive' that was held on Wednesday 3rd February 2021 at 4pm GMT hosted by our CEO Mitch Hahn. Last year was tough for all of us. Now is the time to see what 2021 brings and how we c...
Our Christmas Message To…
Merry Christmas to all!   Here we have Mitch Hahn, CEO of Nordens Chartered Accountants delivering our Christmas message to you. Click the video link or read the full transcript below.   As we enter the ho...
  Why I Founded Nordens
Accounting 2 You

In November 2002, having sold our other business interests off earlier in the year, I decided to set up Nordens Chartered Accountants. The easy part was knowing how to do it, as I had established and built a smaller practice a few years earlier. The difficult part, for me, was not following the traditional accountancy path. Having run businesses, both successfully and unsuccessfully, I wanted to help business owners resolve their short term problems and work with them to achieve their longer term goals. Business has always been my interest and I love that I can help business owners achieve what seems like the impossible every single working day.

Mark Norden Signature

Mark Norden

We're Professionally Certified

Our limited company accountants have a range of qualifications from The Institute Of Chartered Accountants (ICAEW) to the Association of Chartered Certified Accountants (ACCA). We worry about the bye-laws, regulations and ethical guidelines of the ACCA so you don’t have to! That makes us an ACCA-accredited employer as well as a Professional Passport-accredited one!