Employment Allowance

The Employment Allowance is a flat-rate reduction in employer's Class 1 NIC available to most small UK employers. From 6 April 2025 it was raised from £5,000 to £10,500, and the previous restriction (employers had to have a Class 1 secondary NIC bill below £100,000 in the previous tax year) was removed - so any eligible business, regardless of size, can now claim the £10,500. It remains £10,500 for 2026/27.

The allowance offsets the employer's Class 1 secondary NIC liability month-by-month until the cumulative £10,500 is used up. It does not affect employee NI, Class 1A NIC on benefits, or the Apprenticeship Levy. Single-director limited companies with no other employees on payroll are excluded from the allowance, as are public sector bodies (unless they perform exempt charitable functions).

The employer claims the allowance through the EPS, ticking the relevant box and indicating which de minimis state-aid sector they fall under (the allowance is treated as state aid in some sectors).

Worked example: A 12-person consultancy has annual employer NI of £42,000. Without the allowance, that £42,000 falls due monthly through the FPS. With the Employment Allowance, the first £10,500 of secondary NIC is wiped out, typically in the first three to four pay periods of the tax year. From the point the £10,500 is exhausted, monthly employer NI is paid as normal. Net annual saving: £10,500. The Employment Allowance is one of the most important payroll levers for small UK employers; failing to claim it (or losing it because of incorrect single-director treatment) is a common error that costs thousands.