What is Employment Allowance?

Full Definition

The Employment Allowance lets eligible employers reduce their Class 1 employer National Insurance bill by up to £10,500 per tax year (raised from £5,000 to £10,500 in April 2025). It is claimed via payroll software and offset against employer NI due each pay period until exhausted. Eligible employers include most limited companies, partnerships and charities with at least one employee, and most sole traders with at least one employee who is not the owner. The allowance cannot be claimed if the single director is the only employee, if the employer paid £100,000 or more of employer NI in the previous tax year (removed in April 2025 — allowance is now available regardless of size), or if the employer is a public body. For small businesses the allowance can eliminate employer NI entirely.

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