Small Business Accountants

Employment Allowance

Employment Allowance is a UK government scheme that lets eligible employers reduce their annual employer Class 1 National Insurance bill by up to £10,500 per tax year, up from £5,000 before 6 April 2025. The £100,000 NIC bill cap was removed at the same time, so businesses of any size can claim if they employ more than one person liable to secondary Class 1 NICs.

By Jordan Macey MAAT Reviewed by Noor Fiaz Updated 16 Apr 2026 5

Key takeaways

Employment Allowance reduces eligible employers' secondary Class 1 National Insurance liability by up to £10,500 per tax year from 6 April 2025, more than double the previous £5,000.
The £100,000 Class 1 NIC bill cap was removed on 6 April 2025, so employers of any size can now claim Employment Allowance if they meet the other eligibility tests.
Single-director companies where the only employee liable to secondary Class 1 NICs is the director cannot claim Employment Allowance, even after the cap was removed.
Employers claim Employment Allowance through payroll software or HMRC's Basic PAYE Tools by submitting an Employer Payment Summary with the EA indicator set to Yes.
Claims can be backdated for up to four previous tax years, so employers who missed claims in earlier years can still recover the relief on payroll schemes that were eligible at the time.

Running a business can be costly, which is why His Majesty Revenue and Customs (HMRC) has schemes in place to assist small business owners, including the Employment Allowance. Businesses that claim the Employment Allowance receive some relief from National Insurance contributions.

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What is Employment Allowance?

Employment Allowance enables eligible businesses to reduce employer contributions to National Insurance. Under the scheme, an employer can reduce their annual National Insurance liability by up to £5,000. Employment Allowance applies per business, not per employee, which means the reduction will be the same, regardless of how many employees work for the company.

Who is Eligible?

Employment Allowance applies to businesses and charities, including community sports clubs, whose National Insurance contributions were under £100,000 in the previous tax year. You can also apply as a care or support worker. It's possible to claim the Employment Allowance for the previous four years dating back to 2018/2019. A group of companies can also apply, provided that their combined National Insurance contributions were less than £100,000 in the previous tax year. Only one company within the group can claim the full Employment Allowance.

Companies whose majority of work is within the public sector or that only have one employee at a director level earning over the threshold and companies whose employees do not pay Class 1 National Insurance contributions are not eligible.

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How to Claim Employment Allowance?

There are two ways to claim the Employment Allowance, either via your own payroll software or by using basic PAYE tools provided by HMRC.

When Using Your Own Payroll Software

Most modern payroll solutions make it easy for you to claim the Employment Allowance. Simply put "yes" in the Employment Allowance Indicator field when you send your next employer payment summary to HMRC.

Note that if you have more than one payroll, the total National Insurance liabilities for your combined payrolls should be less than £100,000 for you to claim, and you can only make a claim against one payroll.

Using PAYE Tools

HMRC has provided basic tools for filing your Employment Allowance claim. Just select the correct employer name on the home page menu, click 'Change Employer details", and select "yes" in the 'Employment Allowance Indicator' field.

A question will appear: 'Do state aid rules apply?' You should select "yes" if you sell goods and services and "no" if you do not. Then send your Employer Payment Summary as usual.

Note that any off-payroll payments (e.g. to contractors) should not be included and that they do not count towards the £100,000 threshold.

Do De Minimis State Aid Rules Apply to You?

If you make or sell goods and services, Employment Allowance counts as de minimis state aid. There are limits to how much de minimis state aid you can receive, and your Employment Allowance counts towards the total. It's important to ensure you do not exceed the threshold for your sector, even if you do not make a profit.

De minimis state aid threshold per industry

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

You will have been informed, in writing, if you have received any de minimis state aid. Add the total amount of de minimis state aid that you've received or been allocated for the last two years to the full amount of Employment Allowance for the year. Convert this amount to Euros using the previous tax year's exchange rate. You can make a claim if the total falls below the threshold for your sector.

When to Make a Claim?

Employment Allowance should be claimed every tax year. Claims can be made at any point during the tax year; the earlier the claim, the sooner you'll receive the allowance. If you claim late and do not use your Employment Allowance against National Insurance liabilities, you need to contact HMRC and request the following:

to use unclaimed allowance to pay the tax owed, including VAT and corporation tax;
a refund after the end of the tax year if nothing is owed.

You can view exactly how much Employment Allowance has been used during the tax year via your HMRC online account.

Claiming for Past Years

You can claim Employment Allowance for the previous four tax years, going back to 2018/2019. The thresholds for National Insurance and de minimis state aid do not apply to the 2018-2019 or 2019-2020 tax year.

Employment Allowance was £4,000 annually between 6 April 2020 and 5 April 2022 and £3,000 each year between April 2016 and April 2020.

After Filing Your Claim

Businesses can start using their Employment Allowance as soon as the claim has been submitted. No confirmation letters will be sent to acknowledge your Employment Allowance unless your claim has been rejected. Rejections are communicated via automated message within five days.

Updating Your Claim

If you are no longer eligible for the allowance, you need to update your information when you submit your next employment payment summary. Simply select 'No' in the 'Employment Allowance indicator' field.

Do not select 'No' just because you've reached the £5,000 limit before the end of the tax year, as you are still eligible. If you are no longer employing anyone, the allowance will stop at the end of the tax year.

Note that if you stop your claim before the end of the tax year, any allowance received will be removed, and you'll be required to pay secondary Class 1 National Insurance due as a result.

Key Takeaways

Small businesses are under a lot of pressure. Knowing which allowances you can claim and how to make a claim can make a significant difference to your bottom line and free up funds when you need them most. Claiming Employment Allowance is extremely easy - and beneficial. Get in touch with your tax office or accountant if you need to know more.

Frequently asked questions

What is the Employment Allowance in 2025/26?

Employment Allowance is a reduction in employer Class 1 National Insurance liability available to eligible UK employers. For 2025/26 and 2026/27, the allowance is £10,500 per tax year, up from £5,000 for the previous three years. The allowance is applied each pay run until it is used up, and any unused portion is lost at the end of the tax year. It cannot be used against Class 1A, Class 1B, or employee primary Class 1 contributions.

Who is eligible for Employment Allowance?

Eligibility covers most UK businesses, charities, and community amateur sports clubs that employ staff and pay secondary Class 1 National Insurance. From 6 April 2025 the £100,000 NIC bill cap was removed, so size is no longer a restriction. The main disqualification is the single-director rule: if a company has only one director who is the only employee liable to secondary Class 1 NICs, it cannot claim Employment Allowance.

How do I claim Employment Allowance?

Employment Allowance is claimed through payroll. Most commercial payroll software has a tick-box or flag to set the EA status to Yes on the Employer Payment Summary sent to HMRC each month. Employers using HMRC's Basic PAYE Tools can set the same indicator in the employer settings. HMRC automatically applies the allowance against the monthly Class 1 liability from that point in the tax year, until the £10,500 is exhausted.

Can I claim Employment Allowance for previous tax years?

Yes. Employment Allowance claims can be backdated for up to four previous tax years. That means in 2025/26 an employer can still claim for 2021/22, 2022/23, 2023/24, and 2024/25 if they were eligible at the time. Older claims use the allowance that applied in that year, for example £5,000 for 2022/23 through 2024/25. Backdated claims are made by submitting an EPS with the relevant year-specific EA indicator.

Does the single-director rule affect small companies?

Yes. A UK limited company with only one director, where that director is the sole employee paid above the secondary threshold, cannot claim Employment Allowance. The rule exists to prevent directors from self-claiming the allowance on their own salary. Adding a second paid employee who earns above the secondary threshold of £5,000 per year usually makes the company eligible, which is why many single-director companies pay a spouse or family member a legitimate salary.

Which National Insurance contributions does Employment Allowance reduce?

Employment Allowance reduces only employer secondary Class 1 National Insurance contributions, now charged at 15% on earnings above the £5,000 secondary threshold from 6 April 2025. It does not reduce Class 1A contributions on P11D benefits, Class 1B NICs on PAYE Settlement Agreements, or the employee's own primary Class 1 contributions. It also does not cover employee Apprenticeship Levy payments for larger employers.

Do charities and community sports clubs qualify for Employment Allowance?

Yes. UK charities and community amateur sports clubs qualify for Employment Allowance on the same basis as other employers. Charities must meet the ordinary eligibility rules, notably the rule that at least half of their work must not be in the public sector. Because charities typically run multiple small payrolls, backdated claims are a common way to recover lost allowance, with up to four years available on each scheme that was eligible.