What It Is Worth
The allowance is set against the employer's secondary Class 1 National Insurance, the 15% the employer pays on earnings above £5,000 a year per employee. Each month the employer's NI bill is reduced until £10,500 has been used or the tax year ends. An employer whose bill for the year is less than £10,500 pays no employer Class 1 NI at all.
| 2024/25 | 2025/26 and 2026/27 | |
|---|---|---|
| Allowance | £5,000 | £10,500 |
| Limit on the previous year's employer NI | Under £100,000 | None |
Who Can Claim
Businesses, charities and community amateur sports clubs that pay employer Class 1 National Insurance. Since 6 April 2025 this includes large employers: the old rule that the previous year's liability had to be under £100,000 was removed.
Who Cannot
- Single-director companies. If the company has one director and that director is the only person paid above the Secondary Threshold, it cannot claim. A second employee paid above the threshold, or a second director who is, changes that.
- Public bodies, and businesses doing more than half their work in the public sector.
- Connected companies beyond the first. Only one company in a group, or among companies under common control, can claim.
- Employers of domestic staff such as a nanny or gardener, unless the employee is a care or support worker.
An employer with more than one PAYE scheme can claim against only one of them. Earnings of workers caught by the off-payroll (IR35) rules do not count towards it.
How to Claim
Send an Employer Payment Summary with the Employment Allowance indicator set, ideally at the start of the tax year. A claim has to be made each tax year: it does not carry over.
The EPS also asks which business sector the employer is in, for de minimis state aid purposes. Most employers select the general industrial sector; agriculture, fisheries and road freight have their own lower ceilings.
HMRC only applies the allowance once an EPS claiming it has been accepted. Until then HMRC's record of what is owed will not include it, even if the payroll software has already reduced the payment.
How It Is Used Through the Year
The allowance is applied to each month's employer NI in turn until it runs out. It is not divided by twelve.
| Month | Employer NI for the month | Allowance used | Employer NI to pay |
|---|---|---|---|
| April | £3,000 | £3,000 | £0 |
| May | £3,000 | £3,000 | £0 |
| June | £3,000 | £3,000 | £0 |
| July | £3,000 | £1,500 | £1,500 |
| August onwards | £3,000 | £0 | £3,000 |
Any allowance unused at 5 April is lost. It cannot be set against the following year, and it cannot be used against Class 1A National Insurance on benefits or Class 1B.
Claiming Late
A claim can be made at any point in the tax year, and for up to four previous tax years. A claim part way through a year is set against employer NI from the start of that year, so months already paid in full create a credit on the PAYE account.
Clients Taken on Mid-Year
If a client has already used part of the allowance on another payroll system this year, the new system needs to know how much, or it will apply the full £10,500 again from its first run.