Taxation (UK) · National insurance contributions for employed and self-employed persons

Class 1 Employer NIC and Employment Allowance for ACCA TX-UK

Updated 11 October 2026 · Fact-checked

Class 1 secondary NIC is paid by the employer at 15% on each employee's earnings above £5,000 a year. The employment allowance of £10,500 then reduces the employer's annual NIC bill, but never below nil. Work out the gross NIC first, then deduct the allowance if the employer is eligible.

Understand Class 1 Employer NIC and Employment Allowance

Class 1 secondary NIC is the employer's national insurance on what it pays its employees. It is separate from the Class 1 primary NIC that the employee pays out of their own pay. The employer bears the secondary cost, so it is a real expense of employing people.

The charge is simple. The first £5,000 of each employee's annual earnings is charged at nil. Earnings above £5,000 are charged at 15%. Earnings here are the employee's gross pay, including salary, wages, bonuses and commission. You work out the charge employee by employee, not on the total payroll as one lump.

The employment allowance is a relief for the employer. It is £10,500 a year. It is set against the employer's total secondary Class 1 NIC for the year. If the NIC bill is lower than £10,500, the bill becomes nil. You cannot get a refund or carry the unused allowance forward, and the allowance does not reduce any other type of NIC.

Eligibility matters. The tax rates and allowances table ACCA provides gives only the £10,500 amount, not the eligibility rules. As a rule, a business that employs people and is liable for secondary Class 1 NIC can usually claim. Public bodies and businesses doing mostly public-sector work are generally excluded, and a company whose only employee is also its director is generally not eligible. A company with other employees paid above the earnings level that triggers NIC can claim. Read the question wording for facts that point to eligibility or exclusion.

The employer also pays Class 1A NIC at 15% on taxable benefits. That is a separate calculation, and the employment allowance is not shown in the ACCA table as applying to it. Do not mix the two up.

Key rules to remember

Class 1 secondary NIC per employee: (Annual earnings − £5,000) × 15%; Only where earnings exceed £5,000. Nil on the first £5,000. Calculate for each employee separately.
Employer NIC payable after allowance: Total secondary NIC − employment allowance (£10,500), minimum nil; Allowance is given only if the employer is eligible. Unused allowance is lost.
Class 1A rate (for contrast): 15% × taxable benefits; Separate charge on benefits. Do not include it in the secondary Class 1 calculation.

How to solve Class 1 Employer NIC and Employment Allowance questions

Use the same order for any question on employer Class 1 NIC and the employment allowance.

1Identify each employee and their annual gross earnings for the period asked.
2Deduct £5,000 from each employee's earnings. If the result is nil or negative, that employee's NIC is nil.
3Multiply each positive balance by 15% and add the results to get the total secondary Class 1 NIC.
4Check whether the employer is eligible for the employment allowance. Look for sole-director companies or public-sector work.
5If eligible, deduct £10,500 from the total. Do not go below nil.
6Treat any Class 1A on benefits separately, and state clearly what the final employer NIC liability is.

Quickest way: Total the excess, then take 15%

When to use it: Use this in Section A or B objective questions with several employees and a clear eligible employer.

For each employee, write down earnings minus £5,000, ignoring anyone at or below £5,000.
Add the excesses together first.
Multiply the total by 15% once.
Subtract £10,500 if eligible and floor the answer at nil.

Common mistakes in Class 1 Employer NIC and Employment Allowance

Applying 15% to the whole payroll without taking off £5,000 per employee
Students treat the threshold as a single allowance for the business.
Fix: The £5,000 applies to each employee separately. Deduct it employee by employee.
Using the employee's threshold of £12,570 or the 8% rate
The primary and secondary tables sit next to each other and look alike.
Fix: Employer rate is 15% above £5,000. Employee rate is 8% between £12,571 and £50,270, then 2%.
Letting the employment allowance create a negative bill or a refund
Students subtract £10,500 mechanically.
Fix: The allowance only reduces the bill to nil. The answer is the greater of nil and the difference.
Giving the allowance to an ineligible employer
Students skip the scenario details.
Fix: Check for a company with a sole director as the only employee and for public-sector type businesses before claiming.
Applying the employment allowance to Class 1A on benefits too
Both are employer charges at 15%.
Fix: Keep Class 1A separate. Apply the allowance only to the secondary Class 1 total unless the question states otherwise.

Worked examples

Example 1

Nova Ltd employs three staff for the whole tax year. Their annual salaries are £4,800, £28,000 and £62,000. The company is eligible for the employment allowance. Calculate the employer's Class 1 NIC payable for the year.

Show the solution

Employee 1: £4,800 is below £5,000, so NIC is nil.
Employee 2: (£28,000 − £5,000) × 15% = £23,000 × 15% = £3,450.
Employee 3: (£62,000 − £5,000) × 15% = £57,000 × 15% = £8,550.
Total secondary NIC = £3,450 + £8,550 = £12,000.
Employment allowance = £10,500, so NIC payable = £12,000 − £10,500 = £1,500.

Answer: £1,500 is payable for the year.

Example 2

Kite Ltd has two employees, paid £15,000 and £20,000 for the year. The company is eligible for the employment allowance. Calculate the secondary Class 1 NIC payable and say how much allowance is unused.

Show the solution

Employee 1: (£15,000 − £5,000) × 15% = £10,000 × 15% = £1,500.
Employee 2: (£20,000 − £5,000) × 15% = £15,000 × 15% = £2,250.
Total NIC = £1,500 + £2,250 = £3,750.
The allowance of £10,500 exceeds £3,750, so the NIC payable is nil.
Unused allowance = £10,500 − £3,750 = £6,750. It is lost and not refunded.

Answer: NIC payable is nil. £6,750 of allowance is unused and lost.

Exam tips

Write the 15% and £5,000 figures at the top of your working so you do not slip into employee figures.
In Section B scenarios, read for eligibility clues before you calculate. A sole-director company is a classic trap.
Show each employee's NIC on a separate line in constructed-response answers so you pick up method marks even if one number is wrong.
Objective questions are all or nothing, so check that your final answer is floored at nil.
If the question gives part-year employment, check the period it asks about and use the earnings stated for that period.

Practice questions from National insurance contributions for employed and self-employed persons

Class 1 Employer NIC and Employment Allowance in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Strategic ProfessionalClass 1 Primary and Secondary NIC

Class 1 Employer NIC and Employment Allowance: frequently asked questions

What is the employer Class 1 NIC rate for TX-UK?

It is 15% on each employee's annual earnings above £5,000. Earnings up to £5,000 are charged at nil. This applies under the Finance Act 2025 rates ACCA provides.

How much is the employment allowance?

It is £10,500 a year. It reduces the employer's secondary Class 1 NIC bill but cannot take it below nil. Any unused amount is lost.

Who is eligible for the employment allowance?

Broadly, businesses that employ staff and pay secondary Class 1 NIC can claim. A company whose only paid employee is a director is generally excluded, as are public bodies and businesses doing mostly public-sector work. Check the scenario for such facts.

Is the threshold applied per employee or per business?

It is applied per employee. Each person's earnings are tested against the £5,000 level separately, and an employee earning less than this gives nil NIC.