What you need to know about Employment Allowance

With the increase in employers’ National Insurance Contributions (NICs) in April, it is more important than ever that businesses check to see if they can claim Employment Allowance. Helen Wood of TaxAssist Accountants explains the changes to NICs and how Employment Allowance could help employers.

A summary of employers’ National Insurance Contributions (NICs)

Employers pay class 1 secondary NICs (commonly known as ‘employers’ NICs’) on their employees’ earnings through the Pay as You Earn (PAYE) system to HMRC.

If an employee earns more than £417 a month, or £5,000 a year, their employer must pay employer’s NICs on their earnings.

Unlike class 1 primary NICs (employee’s NICs), which is a deduction from employees’ wages, employers’ NICs is an additional cost to employers.

What changed in April 2025?

Prior to April 2025 the employer’s NICs rate was 13.8% and in the most part had been since 2011/12 – albeit there was a short blip when it rose and fell again in 2022/23 under previous governments.

The threshold over which employers were required to pay employers’ NICs also reduced significantly from £758 per month to £417 a month. This resulted in a double whammy for businesses as they would have to pay it for more employees and at a higher rate.

Tax year	Rate	Weekly threshold	Monthly threshold	Annual threshold
2024/25	13.8%	£175	£758	£9,100
2025/26	15%	£96	£417	£5,000

The increase in employers’ National Insurance Contributions (NICs) from April 2025 has been tough for many employers. Therefore, it is more important than ever for businesses to check if they can claim Employment Allowance, which can reduce the annual NICs bill by up to £10,500.

What is Employment Allowance?

Employment Allowance was introduced by the government in 2014. The allowance is available to eligible employers and is designed to help businesses reduce their annual NICs bill, thereby reducing the business’ overall costs.

The allowance is up to a maximum of £10,500 per year for the 2025/26 tax year, which rose from £5,000 in 2024/25. Following the rise of the employer’s NICs rate to 15% and the reduction of the secondary threshold to £417 per month the Employment Allowance is more valuable than ever to claim and is particularly important for owners of small and medium-sized businesses.

Who is eligible for Employment Allowance?

To qualify for the Employment Allowance, your business (or charity) must meet certain criteria. You must not be:

a public body or business doing more than half your work in the public sector (i.e. local councils and NHS services)
a company with only one employee paid above the class 1 NICs secondary threshold where that employee is also a director of the company

In previous years, businesses were not eligible for Employment Allowance if they had an annual employers’ NICs bill in excess of £100,000, but this rule has been revoked for 2025/26.

How do you claim Employment Allowance?

Claiming the Employment Allowance is straightforward. Here is a step-by-step guide:

Ensure eligibility: First, you must check that your business meets the eligibility criteria detailed above.
Payroll software: Through your payroll software, you can tick the ‘Employment Allowance indicator’ field when you complete your payroll and send an Employer Payment Summary (EPS). You should only need to do this once per tax year.
Manual claiming: If you have fewer than 10 employees or your payroll software does not have this you can use Basic PAYE Tools. You should select ‘Change employer details’ and then tick the ‘Employment Allowance indicator’ filed as above.

When do you claim Employment Allowance?

You can claim Employment Allowance at any time during the tax year – you don’t have to claim it before the tax year began or wait until year-end.

If you could have made a claim in a previous tax year and missed out, you can ask HMRC to use any unclaimed allowance against tax or NICs you currently owe. Otherwise, you can arrange for a refund if you do not owe anything.

You can make backdated claims for Employment Allowance for the previous four tax years if you did not at the time. Note that before the 2025/26 tax year, businesses needed to have an employers’ NICs liability of less than £100,000 per tax year to qualify for the Employment Allowance. If you are claiming for any previous tax years, you must meet this requirement for each year being claimed. The maximum allowance for 2021/22 was £4,000 and from 2022/23 to 2024/25 was £5,000 per year.

Does Employment Allowance apply to businesses in the whole of the UK?

The European Union (EU) has rules on member states’ governments providing financial support to private businesses, known as the State Aid rules. Since the UK withdrew from the EU in 2021 the State Aid rules have largely been replaced for British business by the Subsidy Control Act 2022. However, the State Aid rules still apply in Northern Ireland under the Windsor Framework. Limits exist for how much ‘de minimis state aid’ some businesses can receive in a three-year period, and Employment Allowance is counted towards this de minimis.

If a business is located in Northern Ireland and makes or sells goods or wholesale electricity, then the de minimis State Aid rules are likely to apply.

Other businesses in Northern Ireland, along with all businesses in England, Scotland and Wales, do not need to consider the State Aid rules when considering if they are eligible to claim Employment Allowance.

About the author

Helen Wood, CA is a Technical Content Writer at TaxAssist Accountants and is a qualified chartered accountant (CA) with 20 years’ experience. Prior to joining TaxAssist she spent three years as a freelance content writer for clients in the tax and accounting publishing sector and 17 years as a tax advisor at Big Four and Top 10 accountancy firms.