Claiming Employment Allowance

Employment Allowance is a valuable tax relief that can save your business up to £10,500 each year by reducing the amount of employer's National Insurance you pay. If you run payroll and employ staff, this allowance could significantly reduce your tax bill. This guide explains what Employment Allowance is, who can claim it, and how to make a claim through your payroll software.

What is Employment Allowance?

Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £10,500. This means you'll pay less employer's Class 1 National Insurance (the National Insurance you pay on your employees' earnings) each time you run your payroll until either the £10,500 has been used up or the tax year ends, whichever comes first.

You can claim the allowance even if your National Insurance liability is less than £10,500 for the year. You can only claim against employer's Class 1 National Insurance liability, up to a maximum of £10,500 each tax year.

Who can claim Employment Allowance?

You can claim Employment Allowance for the 2025/26 tax year if both of the following apply:

• You're a business or public body
• You do less than half your work in the public sector (such as for local councils and NHS services)

From April 2025, employers paying more than £100,000 in Class 1 National Insurance liabilities can apply for Employment Allowance.

Special cases

You can also claim Employment Allowance if you're:

• A charity (including community amateur sports clubs)
• An employer of a care or support worker, for example to care for someone with a mental or physical disability

Single director companies

If your company has only one director, they must not be the only employee liable for secondary Class 1 National Insurance. This means if you're a sole director and the only person on the payroll, you cannot claim.

Who cannot claim Employment Allowance

You cannot claim if:

• You're a public body or business doing more than half your work in the public sector (unless you're a charity)
• Your company has just one director and that director is the only employee liable for secondary Class 1 National Insurance

Employees you cannot include

Certain employees cannot be included in your claim:

• Someone whose earnings fall within IR35 'off-payroll working rules'
• Someone you employ for personal, household or domestic work (like a nanny or gardener) – unless they're a care or support worker

Special rules for groups and multiple payrolls

If you're part of a group

If you're part of a group of charities or companies (also known as connected companies), only one company in the group can claim the allowance.

If you have more than one payroll

If you have more than one employer PAYE reference, you can only claim Employment Allowance against one of the payrolls.

Claiming for previous tax years

You can claim Employment Allowance for the previous 4 tax years if you're a business or charity (including community amateur sports clubs).

To claim for previous years, your employer's Class 1 National Insurance liabilities must have been less than £100,000 in the previous tax year.

If you're part of a group of companies, the total employer's Class 1 National Insurance liabilities for the entire group must have been less than £100,000 in the previous tax year.

If you have more than one payroll, the total employer's Class 1 National Insurance liabilities for your combined payrolls must have been less than £100,000 in the previous tax year.

Previous rates

Employment Allowance for the previous 4 tax years was:

• £5,000 each year between 6 April 2022 and 5 April 2025
• £4,000 each year between 6 April 2021 and 5 April 2022

Off-payroll payments

Payments to off-payroll workers (for example, contractors) are known as 'deemed payments'. Do not include employer's Class 1 National Insurance liabilities on deemed payments in your calculations. They do not count towards the £100,000 threshold.

De minimis state aid limits

For some businesses, Employment Allowance counts as 'de minimis state aid' – financial support from the government. There's a limit to how much de minimis state aid these businesses can receive over a 3-year period. If they exceed the limit, they cannot claim Employment Allowance.

De minimis state aid limits are likely to apply to your business if both of the following are true:

• Your business is located in Northern Ireland
• Your business makes or sells goods or wholesale electricity

State aid limits by sector

The limit depends on your business sector and is calculated in euros:

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

How to check you're below the limit

If de minimis state aid limits apply to your business, you must:

1. Check if you've received any de minimis state aid (you should have been told in writing)

2. Add the total amount you've received for the tax year you're claiming for and the two tax years before this

3. Add this to the full amount of Employment Allowance for the year you're claiming for, converted into euros using the exchange rate from 30 March of the previous tax year

4. If the total is below the limit for your sector, you're eligible to make a claim

If you're a connected company, the total de minimis state aid for all companies in the group must be below the state aid limit for your sector.

When to claim

You need to claim Employment Allowance every tax year. Claims do not renew automatically.

You can claim at any time in the tax year, but the earlier you claim the sooner you will receive the allowance.

If you claim late and do not use your Employment Allowance against your employer's Class 1 National Insurance liabilities, you'll have to ask HMRC to use any unclaimed allowance at the end of the year to pay any tax or National Insurance you owe.

Sources

• Employment Allowance
• Employment Allowance: further guidance for employers
• Changes to Employment Allowance

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.