Do I Qualify for Employment Allowance?
Employment Allowance lets eligible employers reduce their Class 1 National Insurance bill by up to £10,500 per year. Here's how to check if you qualify.
What Is Employment Allowance?
Employment Allowance is a government incentive that allows eligible employers to reduce their annual employer Class 1 National Insurance contributions (NICs) by up to £10,500 (2025/26 tax year). It's claimed through your payroll software and reduces your liability each time you run payroll until the allowance is used up.
The allowance was increased from £5,000 to £10,500 from April 2025, offering even greater savings for small and medium businesses across Brentwood, Essex, and the rest of the UK. As experienced accountants in Brentwood, we help employers claim every penny they're entitled to.
Who Qualifies for Employment Allowance?
Most employers can claim Employment Allowance, but there are a few conditions you need to meet:
- You must be a business or charity that pays employer Class 1 NICs on employees' or directors' wages.
- From April 2025, there is no upper NI liability threshold — all eligible employers can claim regardless of the size of their NI bill.
- You can only claim one allowance per business, even if you run payroll for multiple PAYE schemes under connected companies.
- Companies where the sole employee is also a director can now claim (the previous exclusion was removed from April 2025).
Who Cannot Claim Employment Allowance?
Certain employers are excluded from claiming:
- Public bodies and organisations carrying out functions of a public nature (e.g. local councils, NHS bodies).
- Employers who carry out more than 50% of their work in the public sector as a service provider.
- Employers of domestic workers such as nannies, au pairs, or personal care assistants employed in a private household.
- Businesses that have already received €300,000 in state aid (de minimis threshold) over a rolling three-year period.
How to Claim Employment Allowance
Check eligibility
Review the criteria above or speak to your accountant to confirm you can claim for the current tax year.
Claim through payroll software
In most payroll software (including Xero, Sage, and HMRC Basic PAYE Tools), tick the Employment Allowance indicator when submitting your EPS (Employer Payment Summary).
Submit your EPS to HMRC
The claim is made via your Employment Payment Summary — it must be submitted on or after the start of the tax year you're claiming for.
Allowance applied automatically
HMRC reduces your employer NI liability each pay period until the full £10,500 is used up, or the tax year ends.
Do I Qualify? Common Scenarios
I'm a sole director with no other employees — can I claim?
Yes. From April 2025, companies where the only employee is a director are now eligible for Employment Allowance. Previously this was excluded, but the rules have changed. If you pay yourself a salary above the secondary threshold and incur employer NICs, you can claim.
I run a small limited company with two part-time staff — am I eligible?
Almost certainly, yes. As long as your business isn't a public body, doesn't mainly carry out public sector work, and hasn't exceeded the state aid threshold, you'll qualify. The £10,500 allowance could cover a significant chunk — or even all — of your employer NI bill.
I employ a nanny at my home — can I claim?
No. Employers of domestic workers in a private household (nannies, au pairs, housekeepers, personal carers) are specifically excluded from claiming Employment Allowance.
My company does contract work for the NHS — does that disqualify me?
It depends. If more than 50% of your work is carried out as a public sector service provider, you cannot claim. However, if the public sector work is a minority of your overall business activity, you may still be eligible. An accountant can help you assess the split.
I run two separate limited companies — can I claim for both?
Only if the companies are genuinely independent. If HMRC considers them to be 'connected' (e.g. common ownership or control), you can only claim one allowance across all connected entities. Each group of connected companies is entitled to one £10,500 allowance.
I'm a charity — can we claim Employment Allowance?
Yes. Charities are eligible for Employment Allowance, provided they're not classified as a public body. Many charities across Essex save thousands each year through this relief. You claim it in the same way — through your payroll software when submitting your EPS.
I forgot to claim last year — can I backdate it?
Yes, you can claim Employment Allowance for previous tax years, typically up to four years back. You'll need to contact HMRC or submit a correction through your payroll software. Your accountant can handle the backdated claim to make sure you recover what you're owed.
I'm a sole trader with employees — do I qualify?
Yes. Sole traders who employ staff and pay employer Class 1 NICs are eligible for Employment Allowance. It's not limited to limited companies — any business structure that runs a PAYE scheme can claim, as long as the other eligibility criteria are met.
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Common Questions
What is Employment Allowance?
Employment Allowance is a government scheme that lets eligible employers reduce their annual employer Class 1 National Insurance contributions by up to £10,500 (2025/26). It's claimed through your payroll software and reduces your liability automatically each pay period.
How much is Employment Allowance worth in 2025/26?
The allowance increased to £10,500 per year from April 2025. This means eligible employers can reduce their employer NI bill by up to £10,500 across the full tax year.
Can a director-only company claim Employment Allowance?
Yes. From April 2025, companies where the sole employee is also a director are eligible to claim Employment Allowance, provided they pay employer NICs on their salary.
Can I claim Employment Allowance if I employ a nanny?
No. Employers of domestic workers in a private household — including nannies, au pairs, and personal carers — are excluded from claiming Employment Allowance.
How do I claim Employment Allowance?
You claim through your payroll software by ticking the Employment Allowance indicator when submitting your Employer Payment Summary (EPS) to HMRC. The allowance is then applied automatically against your employer NI liability each pay period.
Can I backdate an Employment Allowance claim?
Yes, you can typically claim Employment Allowance for up to four previous tax years by contacting HMRC or submitting a correction through your payroll software. An accountant can help ensure the backdated claim is processed correctly.
Can connected companies each claim Employment Allowance?
No. Only one Employment Allowance of £10,500 is available per group of connected companies. If HMRC considers your businesses to be under common ownership or control, you must choose which entity claims the allowance.
Do charities qualify for Employment Allowance?
Yes. Charities that pay employer Class 1 NICs and are not classified as a public body can claim Employment Allowance in the same way as any other eligible employer.
Not sure if you qualify?
Our accountants in Brentwood can check your eligibility and handle the claim for you — including backdated claims for previous tax years. Get in touch today.