Employment Allowance: What Employers Need to Know
From April 2025, more employers can claim a higher Employment Allowance, worth up to £10,500 off their annual employer National Insurance bill.
What You'll Get
Employment Allowance allows eligible employers to reduce their annual employers' Class 1 National Insurance liability by up to £10,500 per tax year. The allowance is applied each time you run your payroll, reducing the amount of employers' Class 1 National Insurance due, until either the £10,500 has been used in full or the tax year ends, whichever comes first.
You can still claim even if your total liability for the year is less than £10,500. In that case, the allowance will simply reduce your liability to nil.
Eligibility
You can claim Employment Allowance for the current tax year if both of the following apply:
You are a business or public body
You do less than half your work in the public sector (such as for local councils or NHS services).
You can also claim if:
You are a charity (including community amateur sports clubs)
You employ a care or support worker, for example to care for someone with a mental or physical disability.
From April 2025, employers with Class 1 National Insurance liabilities exceeding £100,000 are eligible to claim Employment Allowance. Previously, those above this threshold were not entitled to claim it.
Important: If your company has only one director, that director must not be the only employee liable for secondary Class 1 National Insurance. In this situation, Employment Allowance cannot be claimed.
Employees You Cannot Include
Certain employees must be excluded from your claim:
Someone whose earnings fall within IR35 off-payroll working rules
Someone employed for personal, household, or domestic work (such as a nanny or gardener), unless they are a care or support worker.
Connected Companies and Multiple Payrolls
If you are part of a group of companies or charities (known as connected companies), only one company in the group can claim the allowance. Similarly, if you operate more than one PAYE scheme, you can only claim Employment Allowance against one of those payrolls.
When to Claim
Employment Allowance must be claimed every tax year; it does not carry over automatically. You can claim at any point during the tax year, but the earlier you claim, the sooner the allowance will be applied to your payroll.
If you claim late and have not used the allowance against your employers' Class 1 National Insurance during the year, you will need to ask HMRC to either:
Use any unclaimed allowance to pay other tax or National Insurance you owe (including VAT or Corporation Tax if nothing is owed on your PAYE bill), or
Issue a refund after the end of the tax year if you have no outstanding liabilities.
You cannot claim a refund for the difference between your total Class 1 National Insurance liability and the full £10,500 allowance.
How to Claim
How you claim depends on the payroll software you use.
If you use your own payroll software: Set the Employment Allowance indicator to 'Yes' the next time you send an Employment Payment Summary (EPS) to HMRC.
If you use HMRC's Basic PAYE Tools:
Select the correct employer from the home page
Select 'Employment Allowance'
Check the eligibility criteria
Send your EPS as normal.
Stopping Your Claim
If you cease to be eligible, you must set the Employment Allowance indicator to 'No' on your next EPS. However, do not stop your claim simply because:
You have already reached the £10,500 limit before the end of the tax year — this does not make you ineligible
You are no longer employing anyone — the allowance will stop automatically at the end of the tax year.
If you stop your claim before 5 April, any allowance already received will be removed, and you will be required to pay back the corresponding employers' Class 1 National Insurance.
After You've Made a Claim
You can begin using your Employment Allowance as soon as your claim is submitted. HMRC will not send a confirmation letter. If your claim is rejected, you will receive an automated message from HMRC within five working days.
Claiming for Previous Years
You may be able to claim Employment Allowance for up to the previous four tax years if you are a business, charity (including community amateur sports clubs), or if you employ a care or support worker.
Previous rates:
£10,500 between 6 April 2025 and 5 April 2026
£5,000 each year between 6 April 2022 and 5 April 2025
For claims relating to the 2024 to 2025 tax year or earlier, employers' Class 1 National Insurance liabilities must have been less than £100,000 in the previous tax year. This restriction does not apply from 2025 to 2026 onwards.
Final Thoughts
Employment Allowance interacts directly with your monthly PAYE submission, and by getting this right can help to avoid any unnecessary overpayments and administrative burden or corrections later. If you are unsure whether this applies to your business or would like to review your current position, please get in touch.
Useful resources:
Employment allowance eligibility