Employment Allowance – What is it and are you eligible?

This guide aims to enhance your understanding of the allowance, the eligibility criteria, and how to claim it. This is particularly important for owners of small and medium-sized businesses who can significantly benefit from this allowance. 

Employers must pay Class 1 secondary NICs on an employees’ earnings through the PAYE system. The rate of employers’ NIC is 15% and is payable on earnings above the secondary threshold. For 2026/27, the secondary threshold is £417 per month, or £5,000 per year. Employers are responsible for paying NICs to HMRC.  

What is Employment Allowance? 

Employment Allowance was introduced by the Government in 2014. The allowance is available to eligible businesses and is designed to help businesses reduce their annual NICs bill, thereby reducing business costs. 

The allowance is a maximum of £10,500 per year, which should result in cost savings for your business. This allowance helps businesses reinvest in their operations, hire more staff, or simply reduce their overall tax burden. As the employer’s NICs rate increased to 15% (from 13.8%), the secondary threshold reduced to £417 per month (from £758 per month), and the Employment Allowance increased to £10,500 (from £5,000) on 6 April 2025, the Employment Allowance is more valuable than ever to claim.

Who is eligible for Employment Allowance? 

To qualify for the Employment Allowance, your business or charity must meet certain criteria. You must not be: 

• a public body or business doing more than half your work in the public sector (i.e. local councils and NHS services) 
• a company with only one employee paid above the Class 1 NICs secondary threshold and that employee is also a director of the company 

How to claim Employment Allowance 

Claiming the Employment Allowance is straightforward. Here is a step-by-step guide: 

1. Ensure eligibility: First, you must check that your business meets the eligibility criteria detailed above. 
2. Payroll software: Through your payroll software you can tick the ‘Employment Allowance indicator field’ next time your complete your payroll and send an Employer Payment Summary (EPS). 
3. Manual claiming: If your payroll software does not have this you can use Basic PAYE Tools. 

When to claim Employment Allowance

You can claim Employment Allowance at any time during the tax year. You do not need to have applied before the tax year began. The sooner you claim the allowance, the quicker your business can start saving money.  

If you missed a claim, you can ask HMRC to use any unclaimed allowance against tax or NIC you owe. Otherwise, you can arrange for a refund if you do not owe anything. 

You can claim for Employment Allowance for the previous four tax years if you did not at the time. Note that before the 2025/26 tax year, businesses needed to have an employers’ NICs liability of less than £100,000 per tax year to qualify for the Employment Allowance, so if you are claiming for any previous tax years, you must meet this requirement for each year being claimed. The maximum allowance for 2021/22 was £4,000 and from 2022/23 to 2024/25 was £5,000 per year.

What is de minimis state aid? 

The Government provides financial support known as de minimis state aid, which includes Employment Allowance. Limits exist for how much de minimis state aid some businesses can receive in a three-year period. If they exceed the limits, they cannot claim Employment Allowance. If your business is located in Northern Ireland and makes or sells goods or wholesale electricity, then check the de minimis state aid rules and limits here.

How TaxAssist Accountants can help  

The Employment Allowance is a significant benefit to businesses in the UK. Business owners can fully benefit from financial relief by understanding the eligibility criteria and claim process. Our team can help you save money on your tax and NICS bill and get the deductions your business is due. 

Last updated 23 Apr 2026 | First published 11 Jun 2024

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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