A new tax-saving opportunity has opened up for some limited company owners, and it’s both simple and remarkably effective.
Following April 2025, the Employment Allowance has more than doubled. There’s a catch though; If you’re the sole person on your payroll, this significant benefit could pass you by entirely.
However, with one small tweak to your company structure, you could turn a modest £600 expense into a £6,750 tax saving.
We break down exactly how the new allowance works, who qualifies, and how you can ensure your company doesn’t miss out.
(Read Time: Approx. 3 minutes)
Topics Discussed:
- How the 2025 Employment Allowance uplift affects limited companies
- How a minimal payroll adjustment could unlock thousands in savings
Understanding the New Employment Allowance Rules
From 6 April 2025, the Employment Allowance increases from £5,000 to £10,500.
For companies that pay employer’s National Insurance (NI) contributions, this is potentially a significant saving.
The allowance directly offsets the employer’s NI liability.
For example, if your business typically pays £8,000 in employer’s NI for the year, the allowance will reduce that figure to zero.
That’s a full £8,000 back in your pocket.
This allowance is applied against your company’s NI bill automatically through your payroll software once you qualify.
The Problem for Solo Director Companies
Not every company qualifies. The rules exclude limited companies where the only employee on the payroll is also the company director.
If you operate as a one-man band (such as a contractor, freelancer, or consultant) and you’re the only salaried person in your company, you don’t get the £10,500 allowance.
Even if you pay yourself a salary and operate entirely above board, you’re excluded purely on the basis of being a one-person operation.
That means you’ll continue paying employer’s NI unnecessarily, despite the uplift in allowance. For many, this amounts to thousands of pounds in avoidable tax.
How You Can Use the £10,500 Allowance
Here’s where this gets interesting: If your business has more than one employee on the payroll, even part-time, then you do qualify for the full Employment Allowance.
So, what’s the simplest solution? Hire someone. It doesn’t need to be full-time, and it doesn’t need to be permanent.
If your spouse helps with bookkeeping, or your teenage child assists with social media, or even if you employ a cleaner for a few hours a week, that’s enough.
Provided they are genuinely performing work and paid through PAYE, they count.
Let’s run the numbers:
- You hire someone for three weeks at £200 per week
- Total cost to your company: £600
- This new hire makes your company eligible for the Employment Allowance
- You save up to £6,750 in employer’s NI
That’s a net gain of £6,150, simply for understanding the rules.
Who This Applies to and Why You Must Act
This advice is particularly relevant for:
- Contractors working through a personal service company
- Freelancers who pay themselves a modest salary and dividends
- Project managers or consultants who operate through a limited company
If you’re the sole person on the payroll and drawing a salary of, say, £50,000, you are currently not eligible for the allowance.
That means you’re paying employer’s NI on your own salary unnecessarily.
By employing a second person, even for a short period, you convert your company into a qualifying business.
And the £600 you pay them is fully tax deductible as a business expense.
This isn’t a loophole. It’s not evasion. It’s tax efficiency. The rules are public and designed to reward job creation, even on a small scale.
The savings are there for anyone who takes the time to align with the legislation.
Summary
This is not about bending the rules. It’s about using them properly. From April 2025, a one-off payment of £600 to a part-time or short-term employee could result in a tax saving of £6,750.
If you’re a limited company owner currently excluded from the Employment Allowance because you’re the only person on payroll, it’s time to rethink.
Hire someone, pay them through PAYE, and unlock the full benefit of the new £10,500 allowance.
Get in touch today and make your tax work for you.
Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel