How Employment Allowance changed on 6 April 2025
Employment Allowance now reduces an eligible employer's National Insurance bill by up to £10,500 a year, more than double the £5,000 available before 6 April 2025, and around 1,418,000 employers claimed it in the 2025-26 tax year [1] [2]. Two structural reforms landed on the same day: the allowance rose sharply, and the £100,000 eligibility cap that had excluded larger employers since April 2020 was scrapped [3].
Every UK employer with a secondary Class 1 National Insurance liability is affected, because the reform arrived alongside a higher employer NI rate and a lower Secondary Threshold. For a small business running on tight margins, the interaction of these three moving parts decides how much of the payroll bill the allowance actually absorbs.
This article sets out precisely what changed on 6 April 2025, how the higher allowance interacts with the 2026-27 thresholds and rates, which employers can and cannot claim after the reform, and the practical steps a payroll team should take to secure the full £10,500.
Key takeaways
- The maximum Employment Allowance rose from £5,000 to £10,500 from 6 April 2025 and remains £10,500 for the 2026-27 tax year.
- The £100,000 employer NI liability cap was removed, so eligibility no longer depends on the size of the previous year's National Insurance bill.
- The reform landed alongside a higher employer NI rate of 15% and a Secondary Threshold cut to £5,000, both of which raise the underlying cost the allowance offsets.
- Take-up climbed to around 1,418,000 employers in 2025-26, a 16% rise on the previous year, with 85% of claimants being micro employers of one to nine staff.
- The single-director exclusion is unchanged: a limited company whose only person paid above the Secondary Threshold is its sole director still cannot claim.
What Employment Allowance is, and what it does
Employment Allowance is a reduction in an eligible employer's secondary Class 1 National Insurance liability, the National Insurance an employer pays on top of an employee's wages [1]. It is not a cash grant and it is not a reduction in the employee's own National Insurance. It works by offsetting the employer's National Insurance bill each time payroll runs, until the annual maximum is used up or the tax year ends, whichever comes first [1].
The allowance can only be set against employer secondary Class 1 National Insurance. It cannot be used against Class 1A or Class 1B National Insurance, which cover benefits in kind and PAYE Settlement Agreements [4]. An employer whose entire National Insurance cost sits in Class 1A therefore gets no benefit, which is a common point of confusion for businesses that reward staff mostly through benefits rather than salary.
The measure has grown steadily since it began. It launched in April 2014 at £2,000, rose to £3,000 in April 2016, to £4,000 in April 2020, to £5,000 in April 2022, and then to £10,500 from 6 April 2025 [2]. Each uplift widened the pool of employers whose National Insurance bill is fully absorbed by the relief.
The changes that took effect on 6 April 2025
Three distinct reforms to employer National Insurance came into force together on 6 April 2025, and their combined effect is what employers experience at payrun [3]. Reading any one of them in isolation gives a misleading picture of the cost.
The allowance more than doubled to £10,500
The headline change is the size of the allowance. It moved from £5,000 to £10,500 on 6 April 2025, a rise of £5,500, and it holds at £10,500 for the 2026-27 tax year [1] [5]. An employer can still claim the full relief even where the annual National Insurance liability is lower than £10,500, but the offset can never exceed the actual liability for the year [1].
In practical terms, at the 15% employer rate an allowance of £10,500 covers the employer National Insurance on roughly £75,000 of pay above the Secondary Threshold [5] [6]. For a micro employer with a handful of staff, that frequently wipes out the entire employer National Insurance charge for the year.
The £100,000 eligibility cap was removed
From April 2020 to April 2025, only employers whose secondary Class 1 National Insurance liability was below £100,000 in the previous tax year could claim [2]. That restriction was removed on 6 April 2025, so eligibility no longer turns on how large last year's National Insurance bill was [3].
The policy effect of that single change is significant. HMRC describes it as shifting the allowance from a relief targeted at helping small businesses grow into a structural feature of the National Insurance system available to all eligible businesses [3]. Larger employers that had been locked out for five years became eligible again, which is one reason take-up jumped by around 195,000 employers in a single year [2].
The changes landed alongside a higher employer NI rate
The allowance did not change in a vacuum. On the same date, the employer secondary Class 1 National Insurance rate rose from 13.8% to 15%, and the Secondary Threshold, the point at which employer National Insurance starts, was cut from £9,100 to £5,000 a year [2] [5]. Both moves increase the underlying employer National Insurance charge, so the larger allowance offsets a larger bill rather than delivering a pure saving. Employers weighing the true cost of a new hire should read the mechanics alongside the wider employer National Insurance rules rather than looking at the allowance on its own.
How the reform interacts with the 2026-27 thresholds
The value an employer extracts from the allowance depends on the thresholds and rate in force. For the 2026-27 tax year those figures are fixed, and they frame every calculation the payroll team makes [5].
| Parameter | 2026-27 figure | Effect on the allowance |
|---|---|---|
| Employer secondary Class 1 rate | 15% | Sets how much National Insurance each pound of pay above the threshold generates |
| Secondary Threshold (ST) | £5,000 a year (£96 a week, £417 a month) | The point above which the allowance has liability to offset |
| Employment Allowance maximum | £10,500 a year | The ceiling on total relief per business |
| Pay above ST fully covered | Around £75,000 | The wage bill above the threshold the allowance can absorb at 15% |
Because the Secondary Threshold now sits at £5,000, employer National Insurance begins far earlier than it once did, so more of a modest payroll is exposed to the 15% charge [5] [6]. The allowance is applied before other deductions such as recoverable statutory maternity pay, so it should be taken off the employer National Insurance liability first when reconciling the monthly figures [4]. Modern UK payroll software sequences these offsets automatically, but employers running payroll by hand need to apply them in the right order.
The relief is also front-loaded: it is used against the National Insurance liability as it arises each period, so a business with a large monthly bill can exhaust the full £10,500 well before the tax year ends. HMRC's worked example describes an employer with a £1,050 monthly liability using the whole allowance by month 10 and paying the remaining months in full [4].
Who can and cannot claim after the changes
Removing the £100,000 cap widened eligibility, but it did not remove the other qualifying conditions. A business must be a business or public body that does less than half its work in the public sector, and charities and community amateur sports clubs also qualify [7]. Employers of a care or support worker can claim even where they are a domestic employer, an exception that recognises the value of that work [7].
The single-director exclusion still applies
The reform did not touch the rule that keeps sole-director companies out of the scheme. A limited company with just one director cannot claim if that director is the only employee liable for secondary Class 1 National Insurance [7]. The rule also catches companies with several staff where the director is the only person paid above the Secondary Threshold [8].
The way out is the additional employee test. Where a second employee or director is paid above the Secondary Threshold, the company qualifies for the whole tax year, including cases of two directors both paid above the threshold, or husband-and-wife directors both above it [8]. This exclusion applies only to limited companies; a self-employed person is not affected by it [8].
Employees who cannot be included
Certain workers cannot count towards a claim even where the employer is otherwise eligible. Anyone whose earnings fall within the IR35 off-payroll working rules is excluded, as is anyone employed for personal, household or domestic work such as a nanny or gardener, unless that person is a care or support worker [7] [9]. Businesses that engage contractors through deemed employment should confirm which portion of the payroll genuinely attracts the allowance.
Connected businesses face a further limit. Where companies or charities are connected, only one of them may claim the allowance, and it must be set against a single nominated PAYE scheme [4]. A group cannot spread the allowance across multiple entities, and any unused balance cannot be transferred between connected employers [4]. Accountants managing several client schemes typically track this through a multi-client payroll dashboard so a connected group never double-claims.
How to claim and stay compliant
Claiming is a payroll action, not a separate application, and it is deliberately simple. HMRC recognition matters here: payroll software that holds the HMRC Recognised badge submits the required returns correctly and reflects the allowance without manual reconfiguration [10].
Claiming through the EPS
To claim, an employer sets the Employment Allowance indicator to Yes on an Employer Payment Summary sent to HMRC [10]. The claim then flows through the PAYE Real Time Information system, and the allowance is offset against the employer National Insurance due on the Full Payment Submissions that follow [2]. Where a payroll product has no Employer Payment Summary facility, the free HMRC tool can submit the claim while the employer keeps running payroll elsewhere [4].
The claim must be made afresh for each tax year, because it does not carry over automatically [4]. An employer with more than one payroll can only claim against one of them, so the nominated scheme should be the one expected to carry at least £10,500 of employer National Insurance liability in the year [7] [4]. An HMRC-recognised payroll API can automate the indicator so the claim is never missed at the start of a new tax year.
Backdating and record-keeping
A claim can be made at any point in the tax year, and the allowance still applies to liabilities that arose earlier in that same year up to the point the claim is made [4]. It can also be backdated: an employer can claim for up to four previous tax years, so a claim for 2022-23 must reach HMRC by 5 April 2027 [4]. Each past year needs its own Employer Payment Summary [4].
Records supporting a claim must be kept for at least three years after the end of the tax year in which the allowance was claimed, showing why the business was entitled, how much was used, and which liabilities it covered [4]. An employer that stops a claim mid-year loses the allowance already given for that year and must repay the National Insurance it covered, so the claim should only be stopped when eligibility genuinely ends [10]. Businesses weighing the administrative cost against the saving often find that per-payslip pricing keeps the compliance overhead proportionate to payroll activity.
Conclusion
The 6 April 2025 reform did two things at once: it made Employment Allowance far larger and far more widely available, and it did so against a backdrop of higher employer National Insurance. The £10,500 allowance is generous, but its real value is measured against a 15% rate on pay above a £5,000 threshold, so the relief now offsets a heavier bill rather than handing employers a windfall.
For most small businesses the practical message is that the allowance is easy to claim, worth claiming, and easy to lose through the single-director trap or a forgotten annual renewal. As employer National Insurance settles as the single largest payroll cost for many UK businesses, the discipline of claiming every available relief on every payrun matters more than it did when the allowance was a fifth of its current size, and the reform points towards a payroll landscape where automation of these offsets becomes the norm rather than the exception.
Frequently asked questions
How much is Employment Allowance for the current tax year?
Employment Allowance is £10,500 for the 2026-27 tax year, the same maximum that took effect on 6 April 2025 when it rose from £5,000 [1] [5]. An employer can claim the full amount even if the annual employer National Insurance liability is lower, but the offset can never exceed the actual liability for the year.
Did the £100,000 threshold for Employment Allowance really get removed?
Yes. From 6 April 2025 the rule that limited the allowance to employers with a secondary Class 1 National Insurance liability below £100,000 in the previous tax year was removed [3]. Eligibility no longer depends on the size of the previous year's National Insurance bill, which brought larger employers back into the scheme.
Does a company with one director qualify for Employment Allowance now?
No. A limited company cannot claim if its only person paid above the Secondary Threshold is a sole director, and the 6 April 2025 reform did not change this [7] [8]. The company becomes eligible once a second employee or director is paid above the Secondary Threshold in the year.
Can Employment Allowance be backdated after the changes?
Yes. A claim can be made for up to four previous tax years, using a separate Employer Payment Summary for each year, so a claim for 2022-23 must reach HMRC by 5 April 2027 [4]. The higher £10,500 figure applies only from 6 April 2025 onwards; earlier years are claimed at the amount in force at the time.
