Guide · Employer NI
UK Employment Allowance Explained 2025/26 — £10,500 Employer NI Relief
The Employment Allowance lets eligible UK employers reduce their annual employer's Class 1 National Insurance bill by up to £10,500 — more than double the previous £5,000 cap. From 6 April 2025 the relief was raised in tandem with two big changes that pushed employer NI sharply higher: the secondary Class 1 NI rate rose from 13.80% to 15%, and the secondary threshold dropped from £9,100 to £5,000 a year. For most small employers the new £10,500allowance fully offsets the higher rate — but a sole-director limited company with no other employees still cannot claim a penny. This guide explains who qualifies, who doesn't, how the state aid cap works, how to switch the claim on in payroll software, and how the relief stacks with other employer NI reliefs.
- Allowance: up to £10,500 a year off your employer Class 1 NI bill.
- Effective from: 6 April 2025 (£5,000 previously).
- Employer NI rate: 15% on earnings above £5,000 per year per employee.
- Excluded: sole-director companies with no other employees, most public-sector bodies, IR35-heavy contractors.
- Claim: tick Yes on Employment Allowance in payroll software each tax year. Backdatable up to 4 years.
What is the Employment Allowance?
The Employment Allowance is an annual relief — currently £10,500for the 2025/26 tax year — that reduces an employer's liability for secondary Class 1 National Insurance contributions. It is not a cash grant. Instead, when you run payroll, the employer NI you would otherwise hand to HMRC is offset by the allowance on a cumulative basis until the full £10,500 has been used up. From that point onwards in the tax year, you pay employer NI normally.
Because the allowance is cumulative, the monthly saving depends on the employer NI actually generated each month. A business with a steady payroll of, say, £2,000 of employer NI a month will use the allowance up in the first five months of the year, then pay full NI from month six. A business with only £500of employer NI a month will not exhaust the relief at all, banking the full saving month by month until the year-end. Either way, the headline £10,500 is the cap on relief you can receive in the tax year — not on top of it.
The allowance applies only to employer's (secondary) Class 1 NI. It does not reduce employee NI (Class 1 primary), Class 1A on benefits in kind, Class 1B on PSA settlements, or any employee income tax. It is statutory — governed by the National Insurance Contributions Act 2014, section 1 — and not discretionary.
The April 2025 changes
April 2025 brought the biggest single-year shift in UK employer NI in a generation, announced at the Autumn Budget 2024. Three changes hit at once:
- Employment Allowance: raised from £5,000 to £10,500 and the prior £100,000 employer NI eligibility cap was removed. More employers now qualify and the absolute relief doubled.
- Secondary Class 1 NI rate: increased from 13.80% to 15%. The change applies to every pound of earnings above the secondary threshold for every employee on the payroll.
- Secondary threshold: cut sharply from £9,100 to £5,000 a year (£96 per week). Many low-paid jobs that previously generated no employer NI at all now do.
The net effect for a typical small employer is double-edged. A business paying four staff £28,000 each used to face employer NI of about £10,432.8 per year. Under the new regime the same payroll attracts about £13,800 — almost double. But the larger £10,500 allowance now wipes most of that out, leaving the actual cash bill close to where it was before. Larger employers — those with NI bills well above £10,500 — get the smaller of the two effects and feel the full rate-and-threshold squeeze.
Who can claim?
Almost every employer paying secondary Class 1 NI can claim, including:
- Limited companies with at least one employee paid above the secondary threshold (other than a sole director — see below).
- Sole traders and partnerships with one or more employees.
- Charities and community amateur sports clubs (CASCs).
- Employers of care or support workers (a specific carve-out from the public-sector exclusion).
- LLPs treated as partnerships for NI purposes.
Before April 2025 you had to have had employer NI of less than £100,000 in the previous tax year. That cap is now gone — eligibility no longer depends on payroll size, just on the type of employer and the activity rules below.
Who cannot claim?
Several categories of employer are excluded by statute. The exclusions are strictly applied and HMRC will recover relief claimed in error. The main groups:
- Single-director companies with no other employees paid above the secondary threshold. The classic owner-managed contractor company on a £12k director salary cannot claim. Add a second employee (even a spouse on a modest salary above the threshold) and eligibility starts from that pay period.
- Public-sector employers: NHS trusts, local councils, central government departments and most other public bodies are excluded — unless they are running a commercial subsidiary in genuine competition with the private sector.
- “Personal” employments — for example employing a nanny, au pair or housekeeper for purely domestic, non-business purposes (care workers employed personally are an exception).
- IR35-style arrangements: if more than 50% of your work is carried out for one public-sector body and you are essentially providing the labour of a single individual, you cannot claim.
- Connected employers: two or more companies under common control share a single £10,500 allowance between them. The group nominates which entity claims. You cannot multiply the relief by splitting one trade across several connected companies.
“Connected” for these purposes follows the Corporation Tax Act 2010 definition. Two companies are connected when one controls the other, or when both are controlled by the same person or group of persons. For charities a separate but parallel connection test applies.
The state aid (subsidy control) rule
For businesses within the scope of the UK's subsidy control regime (the successor to EU State aid under the Trade and Cooperation Agreement and the Subsidy Control Act 2022), the Employment Allowance counts as a Minimal Financial Assistance subsidy. The cumulative cap is roughly £315,000 in £-equivalent subsidies over any rolling three-year period.
For most small employers this is a non-issue — the allowance is well below the cap and they receive no other subsidies. The rule mainly bites on businesses already receiving grants, R&D Expenditure Credit, Innovate UK funding, Made Smarter assistance or similar. Sector caps are lower in agriculture (about £14k over 3 years) and fisheries (about £36k over 3 years), so primary-sector employers should check carefully before claiming.
Sectors that are de minimis aid scope generally include manufacturing, transport (with sub-caps for road freight), retail, hospitality, construction and most services. If in doubt, ask your accountant — claiming when over the cap means HMRC can recover the relief in full.
How to claim the Employment Allowance
The claim is made through payroll, not via a separate form:
- In commercial payroll software (Xero, BrightPay, QuickBooks, Sage, FreeAgent, etc.) tick the Employment Allowance — Claim checkbox in the employer settings for the relevant tax year.
- In HMRC Basic PAYE Tools answer Yes to the Employment Allowance question and confirm the de minimis state aid declaration.
- The next Employer Payment Summary (EPS) you send to HMRC carries the claim. From that point onwards your monthly NI liability is reduced by the available allowance.
- The claim is per tax year. It does not roll over — re-tick the box every April.
- You can backdate a claim for up to four prior tax years if you were eligible. Submit an EPS for the relevant year through your software.
- If circumstances change mid-year (a second employee leaves a director on their own, say) stop the claim from that pay period via the next EPS.
Worked examples
Example A — Small Ltd with 4 employees on £30k each
Annual gross pay per employee £30,000, four employees on the payroll. Employer NI above the £5,000 secondary threshold is £15,000 for the year (4 × (£30,000 − £5,000) × 15%). The Employment Allowance of £10,500 is deducted from that, leaving a net employer NI bill of about £4,500. Total saving: £10,500 — the full allowance is used. Without the increased allowance the same business would have paid £10,000 — a difference of £5,500.
Example B — Sole trader with one part-time employee on £18k
One employee on £18,000 a year. Employer NI above the secondary threshold is £1,950 for the year. With the £10,500 allowance, that entire amount is absorbed — net employer NI for the year is £0. The unused allowance of about £8,550 simply lapses at year-end; you cannot carry it forward or convert it to cash.
Example C — Sole-director Ltd with no other employees
A one-person consultancy paying the director £12,570 a year and no one else. INELIGIBLE. The single-director-only exclusion bites. Employer NI is modest — about £1,135.5a year — but it must be paid in full. The fix, if it makes commercial sense, is to add a second employee paid above the secondary threshold (often a spouse genuinely employed in the business); eligibility starts from that pay period and the remainder of the year's allowance becomes available.
Interaction with other employer NI reliefs
The Employment Allowance is one of several reliefs that reduce employer NI. They can generally be combined, with these caveats:
- Apprenticeship Levy: employers with an annual pay bill above £3m pay the 0.5% levy regardless of Employment Allowance status. The two are separate; large employers above the levy threshold can still claim the £10,500 against employer NI.
- Veterans' relief:a 0% employer NI rate up to the Upper Earnings Limit applies to ex-forces hires for the first 12 months of their first civilian employment. Apply Veterans' relief first; the residual NI (above the UEL) can still be offset by the Employment Allowance.
- Under-21s and apprentices under 25:0% employer NI up to the Upper Secondary Threshold. As with Veterans' relief, the targeted relief is applied first; the Employment Allowance covers any residual employer NI above the UST.
- Freeport and Investment Zone reliefs: 0% employer NI on new employees working in designated zones (up to the relevant earnings cap) for up to 36 months. Apply first; the EA can cover residual NI.
In every case the targeted relief produces the larger saving per employee — apply those first, then let the Employment Allowance soak up any remaining employer NI for the year.
Useful gov.uk references
- gov.uk Employment Allowance landing page: guidance and current rates.
- National Insurance Contributions Act 2014, section 1: the primary legislation creating the relief.
- Employment Allowance: more detailed guidance: connected-companies tests, public-sector exclusion, single-director rules.
- HMRC manual NIM06900 onwards: the technical NI manual chapter on Employment Allowance.
- Subsidy Control Act 2022 and gov.uk subsidy control guidance: for the de minimis state aid limit.
- Autumn Budget 2024 documents: announcement of the April 2025 changes to the allowance, rate and threshold.