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Are You Making Use of the Employment Allowance?
The Tax Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW) is encouraging employers to take a fresh look at the Employment Allowance. If you have a payroll and are not already claiming this allowance, it could reduce your employer national insurance contributions (NICs) by up to £10,500 for the 2025/26 tax year.
It’s a simple, practical incentive that’s already widely used – over 1.2 million employers claimed it in 2024/25 – but some businesses are still missing out, especially newer or smaller employers unfamiliar with the scheme.
What is the Employment Allowance?
The allowance reduces an employer’s Class 1 NIC liability, and is applied through your payroll, meaning you feel the benefit in real time.
- The allowance reduces the employer’s NIC liability, not an employee’s.
- It’s worth up to £10,500 in 2025/26.
Who can claim?
The ICAEW’s Tax Faculty point out that all employers, including businesses, charities and individuals employing a care or support worker can claim, with the following exceptions:
- Public authorities (who do 50% or more of their work in the public sector) other than charities.
- Single-director companies where the director is the only paid employee.
One restriction to note is that if you employ someone whose earnings are subject to the off-payroll working rules, or a nanny or gardener or someone else providing personal household or domestic work (and they’re not a carer or support worker), then the allowance can’t be used to offset the Employers NIC due on their specific wages.
Also, if your business operates multiple payrolls or is connected to other companies (e.g. within a family business structure), you can only claim once. Determining whether companies are connected isn’t always straightforward to work out, so it’s best to get advice if you’re unsure.
What’s new for 2025/26?
- The maximum allowance has risen to £10,500 (previously £5,000).
- Restrictions that previously blocked many larger employers from claiming have been lifted.
- It no longer counts as de minimis state aid, simplifying compliance for many.
Can you claim for previous years?
Yes - you can go back four tax years. Which means if you were eligible but didn’t claim Employment Allowance for the 2021/22 tax year, you still have until 5 April 2026 to make a claim.
The eligibility requirements can vary for different tax years, so the ICAEW advises that you check the specific eligibility rules for each year before making a retrospective claim.
Bottom Line
If you’re not already taking advantage of it, the Employment Allowance offers real cash-flow benefits. If you would like help in making a claim or checking if you are eligible, please get in touch and we would be happy to help you.
