Make the Most of Your Employment Allowance
- Strength in Numbers
- Jul 24
- 3 min read
Updated: Aug 4
How to shave up to £10,500 off your employer NIC bill in 2025/26
If you run payroll in the UK, the Employment Allowance should be on your radar. It’s a simple but powerful relief that can cut your annual employer National Insurance contributions (NICs) by as much as £10,500 in the 2025/26 tax year. Yet even though over 1.2 million employers claimed it in 2024/25, many smaller outfits and new businesses still overlook it. Read on to learn exactly how it works, who’s eligible, recent rule‑changes you need to know about and how far back you can go if you’ve missed a claim.
1. What Is the Employment Allowance?
In essence, Employment Allowance lets you deduct up to £10,500 from your class 1 employer NIC bill over the course of a tax year. Each time you run payroll, you simply apply the allowance against your total NIC liability until the full amount has been used. It’s not a one‑off rebate but a running credit, seamlessly reducing what you owe to HMRC each pay period.
2. How the Numbers Play Out
Imagine your business incurs £3,130 of employer NICs every month. Here’s how the £10,500 allowance would unwind across 2025/26:
Month | NICs Due | Allowance Applied | Net Payable |
April ’25 | £3,130 | £3,130 | £0 |
May ’25 | £3,130 | £3,130 | £0 |
June ’25 | £3,130 | £3,130 | £0 |
July ’25 | £3,130 | £1,110 | £2,020 |
August ’25–March ’26 | £3,130 | £0 | £3,130 |
Total credit | £10,500 |
3. Who’s Eligible (and Who’s Not)
Almost any employer can claim, including companies, charities and individuals who employ care or support workers except:
Most public authorities: If half or more of your work is in the public sector (e.g. local councils), you won’t qualify.
Single‑director companies: If your only employee (and sole NIC liability) is a director, you can’t claim.
In addition, you can’t use the allowance against:
NICs for “off‑payroll” (IR35) workers
Household or domestic workers (unless they’re registered carers or support staff)
If you operate multiple payrolls, or if you’re part of a “connected” group of companies, only one payroll (or one company) may draw the allowance each year.
4. Recent Changes to Watch
2024/25 boost: The allowance jumped from £5,000 to £10,500, and the restriction that barred larger employers was lifted, an offset to the NIC rate hikes introduced in April 2025.
State aid de‑minimis removed: From 2025/26 onward, you no longer need to worry about Employment Allowance counting against your block‑release of EU “de‑minimis” state aid.
5. Can You Still Claim for Past Years?
Yes, so long as you’re within four years of the end of the tax year in question. In other words:
Tax Year | Deadline for Claim |
2021/22 | 5 April 2026 |
2022/23 | 5 April 2027 |
2023/24 | 5 April 2028 |
2024/25 | 5 April 2029 |
2025/26 | 5 April 2030 |
Just double‑check the rules that applied in the year you’re claiming, eligibility and allowance amounts have shifted recently.
6. Making It Work for You
Review your payroll software to ensure the allowance is switched on.
Assess each payroll (if you run more than one) and pick the one where it delivers the biggest saving.
Consider a retro claim if you started your business or changed your structure in the last four years and never took it.
With a few clicks in your payroll system, you could be slicing thousands off your NIC bill—without ever touching your employees’ wages. Now that’s worthwhile relief.
Comments