The Employment Allowance knocks up to £10,500 a year off an eligible employer's National Insurance bill — claimed with a single flag on a payroll submission, worth the equivalent of employing roughly £75,000 of salary NIC-free, and still unclaimed by a startling number of small employers who qualify. Since April 2025 the allowance has been both bigger (up from £5,000) and broader (the old £100,000 eligibility cap is gone), which means businesses that checked once, years ago, and concluded they were out may now be leaving five figures on the table.
What it is and what it's worth
Employer NIC in 2026/27 runs at 15% on each employee's pay above £5,000 a year — the headline cost of employing anyone. The Employment Allowance offsets the first £10,500 of that bill across the whole payroll: you simply do not pay employer NIC until the allowance is used up each tax year. For a five-person business with a £200,000 payroll, that is real money off the single biggest employment tax; for the smallest employers it can wipe out employer NIC entirely. It offsets employer (secondary) Class 1 only — not employee NIC, not Class 1A on benefits.
Who qualifies — and the one-director trap
Most businesses and charities employing people qualify. The exclusions worth knowing:
- Single-director companies with no other staff. The precise rule: if the company's only person paid above the £5,000 secondary threshold is its sole director, no allowance. Add a second employee earning above the threshold — or a second director — and eligibility switches on. This is the exclusion that catches one-person consultancies, and also the one that changes when the business makes its first hire: the allowance arrives with employee number two, effectively subsidising the hire;
- Public-sector-dominated work. Public bodies, and businesses doing more than half their work for the public sector, are out (charities are exempt from this test — a charity funded by public contracts still claims);
- Off-payroll workers. Deemed employment income under the IR35 rules does not count toward or benefit from the allowance;
- Domestic staff, unless employed as care or support workers.
The £100,000 cap is history: before April 2025, employers whose prior-year NIC bill exceeded £100,000 were excluded; now, size is no bar. Larger SMEs who stopped claiming under the old rule should have resumed — many have not, because nobody told the payroll software the answer had changed.
Groups and connected companies: one allowance, choose wisely
Connected companies — broadly, under common control — share a single £10,500 allowance between them, and it can only be set against one PAYE scheme. The planning is straightforward but frequently fumbled: the group should claim in the company with the biggest employer NIC bill, decide once at the start of the tax year (the choice holds for the year), and remember the connection test when acquiring or incorporating — two companies that were separate claimants can become connected mid-planning. Claiming in two connected companies simultaneously is the error that generates HMRC clawback letters.
Claiming: one field, and check the history
The claim is an Employer Payment Summary (EPS) with the Employment Allowance indicator set to "Yes" — every payroll package has the tick-box, and once claimed it rolls forward year to year (worth confirming it actually did after software migrations, which is where continuing claims quietly die). The old state-aid questions disappeared for claims from April 2025.
Missed years can be reclaimed retrospectively — HMRC accepts claims for earlier tax years (commonly up to four back, with the pre-2025 rules including the £100,000 cap applying to those old years). For a business that qualified but never claimed, the catch-up is among the easiest recoveries in payroll: a few EPS submissions and HMRC either refunds or offsets. Every payroll health check we run tests this, and it pays for the health check more often than any other single item.
The wider employer NIC picture
At 15% on a £5,000 threshold, employer NIC is heavier than it has ever been, which raises the allowance's value and sharpens the surrounding planning: pension salary sacrifice still saves employer NIC on sacrificed pay (with the 2029 cap on the horizon — front-load while it lasts); the under-21 and apprentice-under-25 zero-rate bands relieve NIC on younger staff regardless of the allowance; and the allowance interacts with none of them — it simply comes off the top of whatever employer NIC remains. A payroll optimised across all three is meaningfully cheaper than one running on defaults.
Acumon's payroll management and outsourced payroll teams handle the claims, the connected-company decisions and the retrospective sweeps as standard — and a payroll audit is the quick way to find out whether your business is among the eligible non-claimants. Ten and a half thousand pounds for a tick-box is the best hourly rate in tax; make sure someone has actually ticked it.