What is Employment Allowance in the UK?

Employment Allowance is a simple way for employers to reduce the amount of National Insurance contributions they have to pay. In this comprehensive guide, we’ll answer the key questions: What is Employment Allowance? How does it work, and is it worth claiming?

What is Employment Allowance?

Employment Allowance is a UK government initiative, designed to support small businesses with their National Insurance contributions (NIC). It was first introduced in 2014, but 2025 saw some fairly big changes.

More on these below but first up, let’s take a look at NIC in more detail:

How do National Insurance contributions work?

NIC are paid by both employees and employers. The money helps fund services and benefits provided by the government, for example the NHS, State Pensions, Jobseekers’ Allowance, and Maternity Allowance.

Employees who earn above the minimum threshold owe NIC (£12,570 a year at the time of writing but check gov.uk for updates). These are called Class 1 (primary) NIC. Employers also pay separate contributions. Before April 2025, the minimum threshold for employer NIC was £9,100 per year, i.e., they pay NIC for any of their employees earning above this amount. These are called Class 1 (secondary) NIC. But from April 2025 onwards, the minimum threshold for employer contributions dropped to £5,000 per year.

Even though both employees and employers pay NIC, employers are responsible for making both payments to HM Revenue and Customs (HMRC). Employers deduct NIC from their employees’ paychecks, so before the money reaches their pockets. They then send these payments plus their own NIC to HMRC, via PAYE.

Read more: What is PAYE? All the info you need

How much is Employment Allowance?

So, now that we’ve covered NIC, how does Employment Allowance help? Well, for eligible employers, Employment Allowance reduces employer NIC each year. Before April 2025, this reduction was up to £5,000 a year, but from April 2025 onwards this has risen to up to £10,500 each year (check gov.uk for any future updates). Note that this amount is across the business as a whole, not per employee. Also note that employees’ contributions remain the same.

So, for example, if an employer owed a total of £15,000 in employer NIC, prior to April 2025 they’d only have to pay £10,000 of this each tax year. And from April 2025, they’d only have to pay £4,500.

Once you’ve applied, your employer NIC bill will be reduced accordingly. Your payments will stay at this reduced amount until you reach the maximum allowance, or until the tax year ends — whichever happens first. Even if you don’t owe more than the maximum allowance, you’re still eligible to receive Employment Allowance.

Who qualifies for Employment Allowance?

There are a couple of eligibility criteria to be aware of when it comes to getting Employment Allowance. You must be a business or charity employer. And employers of care and support workers are also eligible.

Prior to April 2025, businesses or charities that owed more than £100,000 in employer Class 1 NIC in the previous tax year weren’t eligible. Note that this limit didn’t include any contributions made for off-payroll workers (IR35) such as contractors, which are known as “deemed” payments. But from April 2025, the £100,000 limit no longer applies. This means any businesses, including larger ones, can claim Employment Allowance if they meet the other eligibility criteria.

There are also some criteria and/or exceptions for specific circumstances:

• If you’re part of a group of businesses or charities: these are called “connected companies,” and only one business or charity in the group can claim Employment Allowance. (The previous £100,000 limit also applied across the whole group, not per company.)
• If you operate more than one payroll: as with connected companies, you can only claim Employment Allowance on one of your payrolls. (The previous £100,000 limit also applied across your combined payrolls, not each individual payroll.)
• If you do work in the public sector: you can only receive Employment Allowance if less than 50% of your work is in the public sector — unless you’re a charity. 
• If you employ only one company director: you can’t receive Employment Allowance if you only have one company director and they’re the only employee eligible for secondary NIC. If you have other employees who also meet the secondary NIC threshold, then you would be eligible. 
• If you employ contractors or domestic workers: you can’t claim against contributions you make for off-payroll workers, or anyone working for you in a personal or domestic capacity (excluding care and support workers). 
• If you’re a business in Northern Ireland: you can’t receive Employment Allowance if it would take you over your de minimis state aid limit. (De minimis state aid is a European Union initiative supporting businesses that provide goods and services. Post-Brexit it’s only relevant to employers in Northern Ireland.) 

How do you claim Employment Allowance?

How to claim Employment Allowance

You can claim Employment Allowance either via your own payroll software or HMRC’s Basic PAYE Tools. Find the “Employment Allowance indicator” and change your answer to “Yes”. Also confirm whether or not de minimis state aid rules apply to your business. If they do, you’ll need to select the sector you work in as well. Then submit your Employer Payment Summary (EPS) to HMRC.

Your Employment Allowance claim should be automatically accepted and your NIC payments reduced accordingly. If not, HMRC will notify you within five working days.

When to claim Employment Allowance

You’ll need to claim Employment Allowance every tax year. You can start claiming at any point during the tax year, but of course the sooner you claim the sooner you’ll see your payments reduced.

If you make a late claim and you’ve already paid your NIC in full, HMRC will either reduce other payments you make by the maximum allowance — for example other PAYE payments, VAT, or corporation tax — or it’ll refund you.

You can also claim in retrospect — up to the four previous tax years. Note that the allowance has changed over the years:

• 2020-21 and 2021-22: up to £4,000 per year
• 2022-23 and 2023-24: up to £5,000 per year
• 2025-26 onwards: up to £10,500 per year.

When to stop claiming Employment Allowance

You only need to stop claiming Employment Allowance if you’re no longer eligible. If you reach the maximum allowance, your payments will automatically return to the full amount. Likewise, if you no longer have any employees eligible for NIC, your allowance will stop once the tax year has finished.

Note that if you do stop claiming Employment Allowance, you won’t be eligible for anything that tax year. If you’ve been receiving reductions up to that point, you’ll need to repay them.

Is it worth claiming Employment Allowance?

Applying for Employment Allowance is a simple and free process, so it makes good business sense to claim if you’re eligible. Here are some reasons why Employment Allowance is a worthwhile choice to make:

• Financial security: being a small business owner can sometimes feel precarious, so any savings you can make are worth pursuing. 
• Cash flow and liquidity: an extra £10,500 per year isn’t to be sniffed at! Having access to funds that would otherwise be earmarked for government payments improves the financial position of your business. 
• Investment and growth: even if your business is in a solid financial position, the money you save from Employment Allowance is a great opportunity for growing or improving your business. Where would you invest a few extra thousand pounds if you could? 

Frequently asked questions

What changed in 2025?

We’ve highlighted the key changes at relevant points throughout this article, but here’s a quick summary. From the 2025-26 tax year, the amount of NIC employers have to pay increased. This is because the employer NIC rate rose by 1.2% to 15%, and because the secondary threshold dropped from £9,100 to £5,000.

To support businesses with this change, the government increased Employment Allowance from £5,000 to £10,500 per year. It also removed the £100,000 limit on employer contributions from the previous year. This means all eligible employers can claim the allowance, not just smaller businesses.

Keep an eye on gov.uk for any future changes.

Is Employment Allowance the same as Small Employers’ Relief?

No, but they are related. Any employer can claim back money they’ve spent on some types of statutory pay, for example Statutory Maternity Pay. Usually this is 92%, but businesses that qualify for Small Employers’ Relief can reclaim 103%. To be eligible, you need to have paid no more than £45,000 in NIC in the previous full tax year. This £45,000 excludes any reductions such as Employment Allowance.

What is Employment and Support Allowance?

Although they sound very similar, Employment and Support Allowance (ESA) is actually quite different to Employment Allowance. ESA is financial support from the government for people whose ability to work is impacted by an illness, injury, or disability. It’s a good option for people who aren’t eligible for Statutory Sick Pay, such as the self-employed.

Find out more about ESA and other types of self-employed sick pay.

Quickfire summary

Simply put, Employment Allowance is a way for employers to reduce their National Insurance liability by up to £10,500 per year. While there are a fair few eligibility criteria to meet, the claim process is quick and easy. Overall, it’s a great way for employers — especially smaller employers — to lower their financial burden. Also keep in mind that the rules changed from April 2025.

Also read:

• What to know about your business tax account (HMRC)
• Employers liability insurance

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