The Employment Allowance

Key facts

The Employment Allowance is £10,500 per year from April 2025 (increased from £5,000).
It reduces your employer Class 1 NI liability — not employee NI.
You must have had an employer NI bill of under £100,000 in the previous tax year to qualify.
You cannot claim if your only employee is a director (you need at least one non-director employee).
One claim per business — connected employers share a single allowance.

What Is the Employment Allowance?

The Employment Allowance is an annual reduction in the amount of employer Class 1 National Insurance a business has to pay. For the 2025/26 tax year it is worth up to £10,500, meaning eligible employers pay no employer NI until their cumulative bill exceeds that amount.^[1]

It was introduced in April 2014 (originally £2,000) and has been increased several times since. The significant jump from £5,000 to £10,500 in April 2025 was designed to offset the impact of the employer NI rate increase from 13.8% to 15%.

How Much Is It Worth?

Tax Year	Employment Allowance
2022/23	£5,000
2023/24	£5,000
2024/25	£5,000
2025/26	£10,500

The £10,500 allowance means a business could employ several workers and pay no employer NI at all if its total employer NI bill is under £10,500 for the year.

Example — small business with 3 employees each earning £25,000:

Employer NI per employee: 15% × (£25,000 − £5,000) = £3,000
Total employer NI for 3 employees: £9,000
Employment Allowance: £10,500
Employer NI to pay: £0 (allowance exceeds the bill)

Example — business with 10 employees each earning £30,000:

Employer NI per employee: 15% × (£30,000 − £5,000) = £3,750
Total employer NI for 10 employees: £37,500
Employment Allowance: £10,500
Employer NI to pay: £37,500 − £10,500 = £27,000

Eligibility Criteria

To claim the Employment Allowance you must meet all of these conditions:^[1]

You are an employer with at least one employee (or an employee and a director)
Your employer Class 1 NI bill in the previous tax year was under £100,000
Your only employee is not a director — if your sole employee is also a company director, you cannot claim

The following employers can claim:

Businesses (sole traders, partnerships, limited companies with qualifying employees)
Charities
Community amateur sports clubs (CASCs)
Care and support workers employed by individuals

The following employers cannot claim:^[3]

Companies where the sole employee is a director
Employers whose previous year’s employer NI bill was £100,000 or more
Public bodies and those doing more than 50% of their work as public authority functions
Employers carrying out functions of a public nature (unless a charity)

Connected Companies & Groups

Connected employers must share a single Employment Allowance between them. You are connected to another employer if:^[3]

One company controls the other
Both are under common control (e.g. same shareholders or a group structure)
They are part of the same charity group

In practice, this means a group of companies with a combined employer NI bill of £200,000 only gets one £10,500 allowance, not one per company. The group must decide which entity claims it.

Tip: If you have multiple companies, allocate the Employment Allowance to the entity that will use it earliest in the tax year. This maximises your cash flow benefit by reducing employer NI payments from month one.

How to Claim

The Employment Allowance is claimed through your payroll software:^[1]

At the start of each tax year, indicate in your payroll software that you wish to claim the Employment Allowance
This is reported to HMRC on your Employer Payment Summary (EPS)
Most modern payroll software has a simple checkbox or toggle for this
The allowance is then automatically offset against your monthly employer NI payments

You must claim each tax year — it does not automatically roll over. If you forget to claim at the start of the year, you can claim later and receive a catch-up reduction.

How the Offset Works in Practice

Once claimed, the allowance is deducted from your employer NI payments on a month-by-month basis until the £10,500 is used up:^[3]

Month	Employer NI Due	Allowance Used	Allowance Remaining	Amount to Pay
April	£2,000	£2,000	£8,500	£0
May	£2,000	£2,000	£6,500	£0
June	£2,000	£2,000	£4,500	£0
July	£2,000	£2,000	£2,500	£0
August	£2,000	£2,000	£500	£0
September	£2,000	£500	£0	£1,500
October onwards	£2,000	£0	£0	£2,000

The Sole Director Rule

One of the most common points of confusion is the sole director restriction. If your company’s only employee paid above the Secondary Threshold is a director, you cannot claim the Employment Allowance.^[1]

However, you can claim if:

You have at least one non-director employee paid above the Secondary Threshold
You have two or more directors (even with no other employees)
You are a director and also employ staff

Tip: If you run a small limited company as a sole director, you are not eligible for the Employment Allowance. The most tax-efficient approach in this case is usually to set your salary at or below the Secondary Threshold (£5,000) to avoid employer NI entirely, and take remaining income as dividends.

Frequently Asked Questions

How much is the Employment Allowance in 2025/26?

The Employment Allowance is £10,500 for the 2025/26 tax year (6 April 2025 to 5 April 2026). This was increased from £5,000 in April 2025 as part of the Autumn Budget 2024 to offset the rise in employer NI rates.

Who is eligible for the Employment Allowance?

Most employers are eligible, provided their employer NI bill in the previous tax year was under £100,000. You must have at least one employee — you cannot claim if your only employee is a director. Connected companies and charities must share one allowance between them.

How do I claim the Employment Allowance?

You claim through your payroll software by indicating on your first Employer Payment Summary (EPS) of the tax year that you are claiming the allowance. Most payroll software has a tick box for this. Once claimed, the allowance is automatically offset against your employer NI payments throughout the year.

Can I claim the Employment Allowance if I’m a sole director?

No. If your only employee paid above the Secondary Threshold is a director of the company, you are not eligible for the Employment Allowance. You need at least one non-director employee (or a second director) to qualify.

Sources

Employment Allowance — GOV.UK
Rates and thresholds for employers 2025 to 2026 — GOV.UK
Employment Allowance: further employer guidance — GOV.UK