What Is the Employment Allowance and How to Claim It?
The Employment Allowance is a government scheme that reduces the amount of employer National Insurance contributions (NICs) a business must pay to HMRC. It is one of the most valuable reliefs available to small employers and is worth up to £10,500 per year from April 2025 — an increase from £5,000 in the previous year under the October 2024 Budget changes.
How the Employment Allowance Works
The Employment Allowance is set off against your employer Class 1 NIC liability each month. Rather than paying the first £10,500 of employer NI to HMRC, you simply reduce your payments by that amount until the allowance is used up. If your total annual employer NI bill is less than £10,500, you pay no employer NI at all. There is no cash payment — it only offsets a liability that already exists.
Who Can Claim?
Most businesses, charities, and community amateur sports clubs can claim the Employment Allowance. You can claim if you are a business or charity paying employer Class 1 NI, you employ at least one worker who is not a director (see below), and your employer NI bill in the previous tax year was less than £100,000.
Who Cannot Claim?
You cannot claim the Employment Allowance if: you are a limited company where the only employee is also the sole director; your employer NI bill was £100,000 or more in the previous tax year; you are a public body (including most NHS trusts); you are a business carrying out personal work in or around a private household (e.g., domestic worker for a private individual); you are already claiming the allowance through a connected business or related charity.
Director Only Companies
This is the most commonly misunderstood restriction. If you run a limited company and you are the only director-employee, you cannot claim the Employment Allowance — even if you have a PAYE salary. If you take on even one non-director employee, the restriction lifts and you can then claim the full allowance.
How to Claim
Claim via your payroll software by including an EPS (Employer Payment Summary) with the Employment Allowance indicator set to Yes. Do this at the start of each tax year — the allowance does not automatically renew. Most payroll software includes this as a simple tick-box or toggle in the employer settings. Claims can be made at any point in the tax year and can even be backdated up to 4 years if you forgot to claim previously.
Connected Businesses
Connected businesses — those under common control — can only claim one Employment Allowance between them. If you operate multiple companies where you have significant control over all of them, only one company can claim the allowance.
