Definition
An annual allowance that enables eligible employers to reduce their total employer Class 1 National Insurance liability. It is claimed through the payroll system and reduces the amount of NIC due to HMRC.
UK Context
For 2025/26, the Employment Allowance is 10,500 pounds per year. Employers claim it through their payroll software by indicating eligibility in their EPS submission. Companies where the sole employee is also a director are not eligible. The allowance was increased from 5,000 pounds in April 2024 as part of changes to employer NIC rates.
Best Practices
- Review eligibility at the start of each tax year as criteria may change
- Claim through payroll software at the beginning of the tax year for maximum benefit
- Ensure connected companies or charities are not claiming more than one Employment Allowance
Frequently Asked Questions
Who is eligible for Employment Allowance?
Most employers with a Class 1 NIC bill below 100,000 pounds in the previous tax year are eligible. Single-director companies with no other employees are excluded. Only one claim can be made per group of connected companies.
How is Employment Allowance claimed?
Employers indicate their eligibility in the Employment Payment Summary (EPS) submitted to HMRC through their payroll software. The allowance is then offset against monthly NIC payments until the full amount has been used.