UK Employment Allowance Guide
UK Employment Allowance explained: claim up to £10,500 off your Employer Class 1 NICs bill. Eligibility rules, single-director restrictions, and RTI EPS claims.
In one sentence
The UK Employment Allowance reduces eligible employers' Class 1 Secondary National Insurance Contributions (NICs) by up to £10,500 per tax year.
Quick answer
- Reduces Class 1 Secondary Employer National Insurance bill by up to £10,500 per tax year
- Former £100,000 prior-year Employer NIC eligibility threshold has been removed
- Single-director companies with no other employees paid above the Secondary Threshold are excluded
- Claimed directly through RTI payroll software via Employer Payment Summary (EPS)
UK Employment Allowance Explained
The Employment Allowance is a valuable UK tax relief that allows eligible employers to reduce their annual Employer Class 1 National Insurance Contributions (NICs) bill by up to £10,500 per tax year.
Instead of paying Employer NI on staff salaries from day one, qualifying businesses pay zero Employer National Insurance until their cumulative NIC liability exceeds the annual allowance limit.
How the £10,500 Employment Allowance works
When you run payroll for your employees or directors, your company incurs Employer Class 1 NICs (currently charged at 15% on earnings above the Secondary Threshold).
With Employment Allowance enabled:
- HMRC automatically deducts your monthly Employer NI liability against your £10,500 allowance balance.
- You pay zero Employer NI to HMRC until your cumulative payroll usage reaches £10,500 during the tax year (6 April to 5 April).
- Employee National Insurance and PAYE Income Tax deductions are not affected and must still be paid over to HMRC as normal.
Who is eligible to claim Employment Allowance?
Most UK businesses, limited companies, partnerships, charities, and community amateur sports clubs with employees qualify for the allowance.
Key Eligibility Criteria:
- Staff Payroll: You must employ workers or directors earning above the Employer National Insurance Secondary Threshold.
- Removal of £100,000 Cap: The former £100,000 prior-year Employer NIC eligibility threshold has been removed, opening the allowance to larger employers.
- Excluded Sectors: Domestic staff (like nannies or gardeners) and public sector bodies (where over 50% of work is public sector) cannot claim.
The Single-Director Exclusion Rule explained
HMRC rules strictly prohibit single-director limited companies from claiming Employment Allowance if the sole employee paid above the Secondary Threshold is the company director.
However, your company becomes fully eligible if you:
- Employ a second director or employee who earns enough to incur Class 1 Employer NICs.
- Employ family members or a spouse on genuine commercial payroll terms paid above the Secondary Threshold.
Connected companies and group restrictions
If you operate multiple limited companies or a group structure:
- Only one company in a connected group or under common control can claim the £10,500 Employment Allowance per tax year.
- You can choose which connected company claims the allowance to maximize tax savings across the group.
How to claim Employment Allowance via payroll
Claiming the allowance is straightforward and managed directly through your RTI payroll software:
- Submit an Employer Payment Summary (EPS) to HMRC with the Employment Allowance indicator set to "Yes".
- You can claim at any point during the tax year. If you claim mid-year, HMRC will automatically offset your allowance against previous months' unpaid Employer NI or refund overpayments.
- You can backdate unclaimed Employment Allowance claims for up to 4 previous tax years.
Read our guide on understanding payroll numbers and HMRC PAYE references or see how our managed UK payroll service handles your Employment Allowance claims.
Want to claim your £10,500 Employment Allowance?
Book a 20-minute call with an experienced UK payroll accountant. We will review your director payroll structure, check connected-company rules, and set up your HMRC EPS claims.
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