The Employment Allowance lets eligible employers reduce their annual employer Class 1 National Insurance liability by up to £10,500 in 2025/26. For many small businesses, this can eliminate their employer NI bill entirely.
How It Works
The Employment Allowance is a flat annual reduction applied against your employer Class 1 NI contributions. You claim it through your payroll software, and HMRC deducts the allowance from your NI payments each pay period until the £10,500 is used up or the tax year ends.
For example, if your total employer NI liability for the year is £8,000, the Employment Allowance reduces it to £0. If your liability is £15,000, you pay only £4,500.
Who Can Claim?
You can claim the Employment Allowance if:
- You are an employer paying Class 1 NI on employees’ earnings
- Your employer NI liability in the previous tax year was below £100,000
One Employment Allowance is available per business, not per PAYE scheme. Connected companies and charities sharing common control can only claim one allowance between them.
Who Cannot Claim?
The following are not eligible:
- Single-director companies with no other employees — if the only employee paid above the Secondary Threshold is a director, you cannot claim
- Employers with a previous year’s employer NI bill of £100,000 or more
- Public sector employers and those carrying out more than half their work of a public nature (with some exceptions for charities)
- Employers using workers provided through service companies for domestic purposes
Employer NI Rates (2025/26)
From April 2025, the employer NI rate is 15% on earnings above the Secondary Threshold of £5,000 per employee. The combination of the increased rate and the lowered threshold means the Employment Allowance is more valuable than ever for eligible businesses.
How to Claim
- Indicate your claim in your payroll software at the start of the tax year (or when you first become eligible)
- The software includes the claim in your Employer Payment Summary (EPS) sent to HMRC
- HMRC reduces your NI payments automatically
You must claim each tax year — it does not carry forward automatically.
Impact on Small Businesses
Consider a small business with 5 employees each earning £30,000:
- Employer NI per employee: 15% × (£30,000 – £5,000) = £3,750
- Total employer NI: 5 × £3,750 = £18,750
- After Employment Allowance: £18,750 – £10,500 = £8,250
The allowance saves the business £10,500 — a meaningful reduction in the cost of employment.
Key Takeaway
If you run a small business with employees, the Employment Allowance is one of the most impactful reliefs available. Ensure your payroll software is set up to claim it from the first pay period of the tax year. Failing to claim costs you real money every month.