If you employ staff in the UK, Employment Allowance (EA) can cut your employer’s Class 1 National Insurance bill by up to £10,500 in 2025/26. It’s one of the simplest ways to reduce payroll costs—provided you’re eligible and you’ve actually switched it on in payroll. For context on current NI bands and pension obligations, see our companion pillar NIC, PAYE & Pension Costs (2025/26).
Quick facts (2025/26)
- Allowance amount: Up to £10,500 off your employer Class 1 NI for the year, applied as you run payroll until used up.
- Employer NI rate: 15% above the Secondary Threshold; the ST is £5,000/yr (£417/month; £96/week).
- Key eligibility update: From April 2025, prior-year >£100k Class 1 NI employers can apply (previous cap removed check GOV.UK eligibility at the point of claim).
Need help sanity-checking your payroll setup? Our Payroll Services UK page explains how we configure EPS correctly and monitor EA utilisation month by month.
Who can (and can’t) claim?
You can usually claim EA if you’re a business or charity that pays employer Class 1 NI. But there are important exclusions:
- Single-director payrolls: If your company’s only employee is a director, you cannot claim. We explain what to do instead in the Director Pay Guide.
- Connected companies: If you’re connected to other companies, only one can claim the allowance across the group for the tax year, choose the entity with the highest employer NI to avoid waste.
- Large employers (cap removed): From 6 April 2025, the old £100k employer NI cap is lifted, such employers can apply subject to the usual rules.
If you’re unsure how these rules hit your specific setup (multi-company groups, seasonal staffing, or apprentices), book a quick review via Payroll Services UK or jump straight to a planning call below.
How to claim Employment Allowance (EPS)
You claim EA through your payroll software by submitting an Employer Payment Summary (EPS) with the Employment Allowance indicator set to “Yes.” If your software can’t do this, you can use HMRC’s Basic PAYE Tools.
- Once claimed, the system will automatically offset up to £10,500 against your employer Class 1 NI across pay runs until the allowance is exhausted (or the tax year ends).
- You can back-claim for previous tax years (process differs follow the GOV.UK “How to claim” notes).
We include an EA activation check in our Quarterly Tax-Planning Check-ins: EA & Benefits-in-Kind guide so you don’t leave savings on the table in April and May.
Why timing matters (cashflow impact)
Employer NI now bites earlier due to the £5,000 Secondary Threshold and a 15% rate so switching EA on in April spreads savings across the year instead of back-loading them into late months. We also model the July Class 1A and October PSA cash spikes (if relevant) inside your 52-week forecast so nothing surprises you, see Cashflow Forecasting Services for how we handle those HMRC events in real cash terms.
Worked examples (SMEs 5–30+ staff)
Example 1: 18-staff service firm (steady payroll)
- Employer NI forecast (after thresholds): £28,000 for 2025/26 at 15%.
- Claim EA in April: Up to £10,500 is offset monthly until used, roughly the first ~4–5 months of employer NI are covered, smoothing cashflow.
- Claim in Month 12: You’ll still get relief up to £10,500 within the tax year, but most of the year’s NI outflow has already happened, poorer cash timing.
Takeaway: Claim early to pull savings forward. If you want us to check this automatically each April, it’s baked into our Payroll Services UK workflow.
Example 2: Group with connected companies
- A Ltd and B Ltd are connected. A Ltd expects employer NI £20k; B Ltd £8.7k (2025/26). Only one company can claim the £10,500 allowance allocate to A Ltd to maximise relief.
- Document the decision in your year-start payroll notes and re-assess annually (acquisitions, disposals, or headcount changes can flip the optimal claimant).
For a wider tax-efficiency view (salary vs dividends vs employer NI interactions), dip into our Director Pay Guide.
At-a-glance checklist (pin this)
- Confirm eligibility (single director? connected companies? public sector/IR35 restrictions?).
- Switch EA on via EPS in April; confirm the indicator is set in your payroll software (or Basic PAYE Tools).
- Monitor utilisation monthly EA offsets employer Class 1 NI until the £10,500 cap is reached.
- Re-check at year-end (eligibility for next year, group structure changes, director headcount).
- Bundle with quarterly reviews: Add EA to your standing Quarterly Tax-Planning Check-ins so it never gets missed.
FAQs (straight answers)
1) Can a sole-director company claim EA?
No—if the only employee is a director, the company cannot claim EA. See the Director Pay Guide for a tax-efficient draw strategy without EA.
2) We paid over £100k employer NI last year, are we out?
From 6 April 2025, employers over £100k in prior year Class 1 NI can apply (subject to the standard conditions). If you’re near the line, we’ll verify this during your Payroll Services UK onboarding.
3) Do we need to re-claim every year?
Review eligibility annually and ensure the EPS indicator is correctly set for the new tax year especially if your group structure or workforce changed. Our Quarterly Check-ins include this rollover check.
4) How does EA interact with other NIC reliefs?
EA offsets employer Class 1 NI. Other secondary-rate reliefs (e.g., under-21s, apprentices, Freeports, Investment Zones, veterans) are separate; for the current bands and thresholds, see NIC, PAYE & Pension Costs (2025/26).
What to do next
Want us to switch EA on, validate eligibility (single-director/connected-company checks), and bake the savings into your 52-week forecast?
CTA → Book a 20-minute planning call. We’ll run a quick employer-NI review, confirm your EA position, and make sure the allowance is flowing through your payroll from April not Month 12.