Updated for the 2026/27 tax year
What is Employment Allowance?
Employment Allowance allows eligible employers to reduce their employer National Insurance liability by up to £10,500 each tax year. The allowance is applied against an employer’s Class 1 National Insurance contributions and can reduce the amount they need to pay to HMRC.
How does it benefit employers?
Employment Allowance aims to support businesses that are creating and sustaining employment, reducing employer’s Class 1 National Insurance (NI) contributions by up to £10,500 each tax year.
Who can claim?
As an employer, you can only claim against the Class 1 NI paid, up to a maximum of £10,500 each tax year. You can still claim the allowance if you pay less than £10,500 a year, but the total amount of Employment Allowance claimed must not exceed your employer’s NI liability. You can claim Employment Allowance if:
- You are a business, charity or community amateur sports club, with at least one employee and pay employer’s Class 1 National Insurance.
- You employ a care or support worker.
From April 2025, the previous restriction preventing employers with more than £100,000 of employer Class 1 National Insurance liabilities from claiming Employment Allowance has been removed.
If you have more than one employer PAYE reference, such as different businesses in a group, then you can only claim Employment Allowance against one of them. Similarly, if you are part of a group of connected companies or charities, only one company or charity within the group can claim the allowance.
Employment Allowance cannot be offset against Class 1A and Class 1B NI contributions arising from benefits-in-kind or from Pay As You Earn Settlement Agreements with HMRC. However, where a late claim in a tax year (for that tax year) means that there is insufficient employer Class 1 NICs liability remaining in the tax year to use the full amount of the Employment Allowance due to you, this can be offset against other current/future PAYE liabilities so that the benefit of the Employment Allowance is not lost.
Who cannot claim?
You can’t claim Employment Allowance if:
- You are the sole director and the only employee liable for employer Class 1 National Insurance contributions.
- You employ someone for personal, household or domestic work unless they are a qualifying care or support worker.
- You are a public body or business doing more than half your work in the public sector (such as local councils and NHS services), unless you’re a charity.
- You cannot include an employee in your Employment Allowance claim where their earnings fall within the IR35 ‘off-payroll working rules’.
There are complicated rules where you own more than one company, so please take advice in these circumstances.
How to claim
You can make your Employment Allowance claim via your payroll software at any time during the tax year. When you next send an Employer Payment Summary (EPS) to HMRC, simply put ‘Yes’ in the ‘Employment Allowance Indicator’ field. Make sure you submit a new Employment Allowance claim when you move into a new tax year.
The indicator will calculate the allowance and reduce your employer’s (secondary) Class 1 NI each time you run your payroll until the £10,500 limit is reached or the tax year ends. It is sensible to check that the indicator carries forward when moving to a new tax year.
If you stop being eligible for Employment Allowance during the tax year, you should select ‘No’ in the Employment Allowance Indicator field on your next EPS.
Can I backdate my claim?
If you’re a business or a charity, you can claim Employment Allowance for up to the previous four tax years, provided you were eligible in the tax year you are claiming for.
It’s important to remember that the rules applying to the year you are claiming for still apply. For claims relating to 2024/25 or earlier, for example, your employer’s Class 1 National Insurance liabilities generally needed to have been below £100,000 in the previous tax year. The removal of this restriction applies from the 2025/26 tax year onwards.
You should claim the Employment Allowance as soon as possible after 6 April using an EPS. You can also make a retrospective claim up to four years after the end of the tax year to which the allowance relates.
A separate EPS should be submitted for each year when a retrospective claim is made. HMRC will generally offset a successful retrospective claim against existing or future PAYE liabilities. If there are no outstanding liabilities, you may be able to request a refund from HMRC.
If you would like to discuss Employment Allowance further or if you have any other tax questions, we would be delighted to help you. Contact us today.
