A brief guide to Employment Allowance

5th November 2025

Employment Allowance Explained

Eligible businesses can save up to £10,500 per tax year on National Insurance Contributions (NICs) by taking advantage of a valuable relief called Employment Allowance. In this guide, we’ll discuss what it is, the eligibility criteria and how you can claim it.

What is Employment Allowance?

Employers are required to pay Class 1 secondary NICs on their employees’ earnings through the PAYE system. This 15% rate is payable to HMRC on earnings above the secondary threshold, which for 2025/26 is £417 per month or £5,000 per year.

Employment Allowance is designed to help certain businesses reduce their NIC bill. It enables qualifying companies to pay less Class 1 secondary NICs each time they run payroll, until the £10,500 has been used or the tax year ends – whichever is sooner. The cost savings allow businesses to reinvest in their operations or resources, or to simply reduce their tax burden.

Who is eligible for Employment Allowance?

In order to claim Employment Allowance, both of the following criteria must 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)

Charities and community amateur sports clubs can also claim, as can those who employ a care or support worker.

If your company has only one director, they must not be the only employee liable for Class 1 secondary NICs. You cannot claim for employees whose earnings are within IR35 off-payroll working rules, or for those employed for personal, household or domestic work such as a cleaner or gardener.

How to claim Employment Allowance

Claiming Employment Allowance is a straightforward process:

Check your business is eligible for the allowance
Check the ‘Employment Allowance indicator’ field on your payroll software when you complete payroll and send an Employment Payment Summary (EPS)

Use Basic PAYE Tools to claim if your payroll software doesn’t have this field.

When to claim Employment Allowance

Employment Allowance can be claimed at any time during the tax year, and no application needs to be sent before the beginning of the tax year. The sooner you begin claiming, the sooner your business will save money.

If a claim is missed, you can ask HMRC to use it against any tax or NICs you owe. Otherwise, you can arrange for a refund. You can also claim for the four previous tax years if you were not claiming then. However, the regulations were slightly different before the 2025/26 tax year, so you will need to have had an employers’ NIC liability of under £100,000 per tax year to qualify. The maximum allowance was also raised in April 2025 from £5,000, so you cannot claim more than this for the 2022/23 to 2024/25 tax years. For 2021/22 the allowance was £4,000.