What Is Employment Allowance in 2025/26 and Who Qualifies?
If you run a limited company and pay employees, you may be able to reduce your employer National Insurance bill by up to £10,500 per year.
This is done through Employment Allowance — and the rules have changed in recent years.
In this guide, we explain:
- How much Employment Allowance is in 2025/26
- Who qualifies
- Who cannot claim
- Common mistakes
- How to claim correctly
What Is Employment Allowance?
Employment Allowance allows eligible employers to reduce their annual employers’ Class 1 National Insurance liability.
For 2025/26, the maximum allowance is:
£10,500 per tax year
The allowance reduces your employer National Insurance contributions (NIC) each time you run payroll until either:
- The £10,500 limit is reached, or
- The tax year ends
You cannot claim more than your total employer NIC liability — but even if your NIC bill is less than £10,500, you can still claim the full reduction up to your liability .
How Does Employment Allowance Work?
Employment Allowance offsets employer National Insurance only — not employee NIC and not income tax.
For example:
If your company pays:
- £15,000 in employer NIC during 2025/26
You can reduce this by:
- £10,500
Leaving:
- £4,500 payable
If your total employer NIC bill is only £8,000, you pay nothing — but the allowance does not generate a refund beyond your liability.
Who Qualifies for Employment Allowance in 2025/26?
You can claim Employment Allowance if:
- You are a business or public body
- You do less than half your work in the public sector
From April 2025, employers paying more than £100,000 in Class 1 NIC liabilities can apply for Employment Allowance .
This widened access compared to earlier restrictions.
Can Single-Director Companies Claim Employment Allowance?
In most cases, no.
If your company has:
- Only one director
- And that director is the only employee liable for secondary Class 1 National Insurance
You cannot claim Employment Allowance .
This is one of the most common misunderstandings among small limited companies.
However, if:
- You have at least one additional employee paid above the NIC threshold
The company may qualify.
Who Cannot Be Included in the Claim?
Certain workers do not qualify for inclusion in Employment Allowance claims.
For example:
- Workers caught under IR35 off-payroll rules
- Employees performing personal, household or domestic work (such as a nanny or gardener), unless they are a care or support worker
It is important that payroll categorisation is correct.
What If You Have Multiple Companies?
If you are part of a group of connected companies:
- Only one company in the group can claim Employment Allowance
This rule prevents duplication of relief across associated entities.
Careful group review is required before submitting a claim.
What If You Have More Than One Payroll?
If your company operates more than one PAYE scheme:
- You can only claim Employment Allowance against one payroll
This should be considered when structuring payroll systems.
How to Claim Employment Allowance
You claim through your payroll software by submitting an Employment Payment Summary (EPS) to HMRC.
Once claimed:
- The allowance is applied automatically through PAYE
- Employer NIC liabilities are reduced in real time
The claim must be renewed each tax year.
Example: Small Limited Company
Company structure:
- 1 director
- 2 employees
- Employer NIC liability: £12,000 per year
Because there are employees in addition to the director, the company qualifies.
Employment Allowance: £10,500
Remaining NIC payable: £1,500
Annual saving: £10,500
For many small companies, this is one of the most valuable available tax reliefs.
Common Employment Allowance Mistakes
We regularly see:
- Single-director companies claiming incorrectly
- Connected companies both claiming
- Payroll software not updated correctly
- Failure to renew annually
- Misclassification of workers under IR35
A payroll review often uncovers missed claims or incorrect applications.
Is Employment Allowance Worth Claiming?
In most qualifying cases, absolutely.
It directly reduces employer National Insurance, which is a real cash saving.
For owner-managed businesses with staff, this can significantly reduce employment costs.
Final Answer: What Is Employment Allowance in 2025/26?
Employment Allowance allows eligible employers to reduce their employer National Insurance bill by up to £10,500 per year in 2025/26 .
You qualify if:
- You are a business
- You do not operate mainly in the public sector
- You are not a single-director-only company
- You meet connected company rules
If you are unsure whether your company qualifies — or whether you are missing out — a review of your payroll setup is advisable.
