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Suppose you run a one-person limited company and follow the suggested tax-efficient strategy of paying yourself a director’s salary to match your Tax-Free Allowance, and take any other cash from the company as dividends.
You must be aware of a crucial change announced in the 2024 budget that has significantly increased your national insurance bill.
Here’s what’s changed—and why it matters to you
Quick Recap: What Is Employment Allowance?
The Employment Allowance allows eligible employers to reduce their annual Employer National Insurance bill by up to £10,500 per year (up from £5,000 in 2024–25). It’s designed to support small businesses by reducing staff costs.
Historically, one-person companies—where the sole director is the only employee on the payroll—haven’t qualified. The rules required a second employee to be paid above a secondary threshold.
What’s New in 2025?
Changes to employer National Insurance rates and thresholds have more than doubled the amount of employer NIC a one-person company pays.
With the employer’s NIC rate now increased and the threshold for employer contributions significantly lowered to £5,000 per year per employee, many sole director companies will now find themselves paying a much higher NIC bill than in previous years.
This makes employing a second person (e.g., a family member or friend above the age of 15) to access the Employment Allowance even more beneficial and tax-efficient, helping you retain more of your income and lower your tax outgoings.
Why This Matters
Employer NICs are now 15% (compared to 13.8% in 2024–25), and the threshold at which you start paying Employer NICs has dropped sharply in 2025–26.
2025–26 Employer NIC Thresholds:
- £96 per week
- £417 per month
- £5,000 per year (compared to £9,100 in 2024–25)
More one-person companies will be caught in the employers’ NIC net, making the Employment Allowance more relevant than ever.
Example: How Much Could You Save?
Suppose you pay yourself a salary of £12,570 in 2025. Your company would now pay Employer NICs on anything above £5,000:
- NICable pay: £12,570 – £5,000 = £7,570
- Without Employment Allowance: NICs @ 15% = £1,135.50
- With Employment Allowance: £0
That’s a £1,135 saving (compared to £478 in 2024–25)
💡 Tax Tip: Add a Second Employee to Trigger the Allowance
To make this saving, consider adding a second employee to trigger Employment Allowance eligibility.
To do this:
- Your company must have more than one person on the payroll, even if temporarily and only paid once.
- You only need to pay this person a minimum of £97 in one week during the tax year, allowing you to save the £1,135 mentioned above.
- You can either
- hire someone temporarily to help with some specific admin or marketing task that supports your business, or
- assign them a role with statutory duties, such as a company secretary or director
- Please make a payment to them of either £97 in a weekly payroll, or £418 in a monthly payroll
- There is no restriction on employing or appointing a family member as a company secretary or director from the age of 16.
Once NICs become payable on that second employee, you can claim the Employment Allowance – easily wiping out all NIC due.
🦷 Example Tasks for an Associate Dentist’s Temporary Employee
If you’re an associate dentist or in any other business and want to employ someone temporarily (e.g. a VA, spouse, or student), here are some examples of eligible business-related tasks:
Admin Tasks
- Organise financial records (e.g., sort receipts, track business expenses)
- Update a database of suppliers and service providers
- Compile a list of CPD courses and deadlines
- Organise and rename digital files for easy access
- Assist with scheduling meetings or managing a calendar
- Set up or transfer of new Information Technology hardware or software
Marketing Tasks
- Research local competitors’ pricing and services
- Compile a list of potential referral partners (GPs, orthodontists, hygienists)
- Create or update a professional social media profile (e.g., LinkedIn, Instagram)
- Draft content for social media (e.g., educational posts, tips for patients)
- Check and edit before-and-after treatment photos for marketing use
These legitimate business tasks can be completed remotely and as a one-off. You could unlock the full allowance if the person is paid through payroll (PAYE) and earns above the thresholds.
⚠️ Warning: Director’s NIC Is Calculated Annually
Unlike regular employees, who are assessed weekly or monthly, NIC is calculated annually for directors.
To qualify for Employment Allowance by appointing a second director:
- That director’s annual salary must exceed £5,000.
- If below this threshold (e.g. £4,500), no Employer NIC is due, so the salary doesn’t qualify.
💡 If you don’t want to pay more than £5,000 to a second director, instead appoint them as a company secretary, as their NIC is not calculated annually, you can easily structure their salary, so it’s paid above weekly (£96) or monthly (£417) thresholds. This makes it count toward Employer NIC and qualifies for the allowance.
A company secretary is an officer of the company but has no decision-making powers. Once appointed, they are required to be registered and listed on the public Companies House register, but that is their only requirement. They can flexibly remain in place year on year, paid or unpaid, and be easily removed at any stage without notice or reason by holding a directors’ meeting and notifying Companies House.
💡 Tax Tip: Change a Dividend to a Salary
If you have another shareholder who only receives a dividend, consider changing their payment to a qualifying salary.
⚠️ Warning: Be mindful of the Employee NIC that may arise.
If the salary is paid as a one-off bonus above the weekly (£242) or monthly (£1,048) employee thresholds, it will trigger an 8% Employee NIC charge on payments above these thresholds. This can easily be avoided by structuring payments below the employee threshold but above the employer threshold.
⚖️ Complying with the NMW, RTW, and AE for Employees
When hiring a temporary employee to qualify for Employment Allowance, remember that you must also comply with National Minimum Wage (NMW), Auto-Enrolment Pensions (AE) and requirements and ensure your employee has the Right to Work (RTW) in the UK.
- National Minimum Wage (NMW): Ensure your employee is paid at least the applicable National Minimum Wage or National Living Wage rate. Also, note that employing individuals under 16 is generally not allowed. Company directors and secretaries are not subject to the National Minimum Wage.
- Auto-Enrolment Pensions (AE): Eligible employees aged between 22 and State Pension Age who earn over £10,000 (£833/month or £192/week) annually, prorated, must be auto-enrolled into a workplace pension scheme. However, if someone is on a contract shorter than 3 months, postponement effectively means you won’t auto-enrol them. Directors and company secretaries are not automatically included in auto-enrolment.
- Right to Work (RTW): Ensure employees have the legal right to work in the UK. This applies to company directors and secretaries who work for the business; they must also have the legal right to work in the UK, even if they are not receiving a salary.
⚖️ Documentation and Contracts of Employment
Employees working for you under PAYE should have an employment contract and receive a written statement of employment particulars on or before their first working day.
However, company directors and secretaries are generally not required to have a contract of employment; they must be formally appointed as company officers and registered at Companies House.
How to Claim
We claim the Employment Allowance for you through our payroll software by ticking the eligibility box when sending HMRC pay run information.
Here’s what you need to know:
- Eligibility: Having at least two employees paid above the Employer NIC threshold is key. If this condition is met, you can access the allowance at any point in the tax year. The earlier you’re eligible to make the claim, the sooner you’ll benefit.
- Timing: If you claim before paying HMRC, your employer NICs will be reduced immediately, and you won’t need to pay HMRC. However, if you’ve already paid NICs to HMRC and then claim the allowance, they will carry forward any overpaid amount to offset against any future liabilities.
- Payroll Processing: All employees, directors, and secretaries must comply with PAYE requirements to be paid. We can process statutory forms such as P46 for new joiners (P45 for leavers) and payslips. Depending on the tax code that HMRC issues, an income tax deduction might be required.
Final Thoughts
With the Employer NIC threshold reduced to £5,000, the rate increased to 15%, and the Employment Allowance boosted to £10,500, this relief is now more valuable than ever, especially for one-person companies.
The cheapest way to access the employment allowance is to pay a second employee £97 within a weekly pay run.
Having the second employee as a company secretary rather than as an employee avoids any requirements to comply with employment legislation and the hassle of issuing contracts for their temporary employment.
If you read this and want to explore the second-employee strategy, get in touch with your thoughts.
