The Employment Allowance is worth up to £10,500 off an eligible employer's Class 1 National Insurance bill for the 2026-27 tax year, yet it is not applied automatically: it has to be claimed through the Employer Payment Summary, and the claim has to be renewed once each tax year [1] [2]. Around 1,418,000 employers claimed it in the 2025 to 2026 tax year, and every one of them did so by sending a single field to HMRC in an EPS [3].
The Employer Payment Summary, or EPS, is the second of the two Real Time Information returns that an employer sends to HMRC. The first, the Full Payment Submission, reports what employees were paid. The EPS reports the things that reduce what the employer owes, and the Employment Allowance is one of them [2].
This guide explains what the EPS is, how to make and renew an Employment Allowance claim through it, the deadlines that apply, what happens after the claim is sent, and how to stop a claim correctly. It addresses employers running their own payroll and reflects the rules for the 2026-27 tax year.
Key takeaways
- The Employment Allowance is claimed by putting Yes in the Employment Allowance indicator field of an Employer Payment Summary [4].
- The claim must be made once each tax year: it does not roll over automatically [2].
- An EPS should reach HMRC by the 19th of the following tax month, and each tax month starts on the 6th [2].
- Once claimed, the allowance offsets employer Class 1 National Insurance on each payrun until the £10,500 is used up or the year ends [1].
- If payroll software cannot send an EPS, HMRC's Basic PAYE Tools can be used instead [4].
What the EPS is and where it fits in RTI
Under Real Time Information, an employer reports payroll to HMRC through two submission types. The Full Payment Submission, or FPS, is sent on or before each payday and reports each employee's pay, tax, and National Insurance [5]. The Employer Payment Summary is sent to report amounts that the FPS cannot, and it is what an employer uses to reduce the liability calculated from the FPS [2].
An employer sends an EPS when it needs to tell HMRC any of the following: that it is claiming the Employment Allowance, that it is reclaiming statutory maternity, paternity, adoption, neonatal care, parental bereavement, or shared parental payments, that it can reclaim Construction Industry Scheme deductions as a limited company, or that it is liable for the Apprenticeship Levy [2]. An EPS is also sent in place of an FPS when no employees were paid in a tax month [2].
The table below sets out the division of labour between the two returns.
| Return | When it is sent | What it reports |
|---|---|---|
| Full Payment Submission (FPS) | On or before each payday | Employee pay, tax, and National Insurance [[5]](https://www.gov.uk/running-payroll/reporting-to-hmrc) |
| Employer Payment Summary (EPS) | Monthly, by the 19th of the following tax month | Employment Allowance, statutory pay recovery, CIS deductions, Apprenticeship Levy, nil payments [[2]](https://www.gov.uk/running-payroll/reporting-to-hmrc-eps) |
Because the Employment Allowance sits in the EPS rather than the FPS, it is entirely separate from the payroll run itself. The FPS still reports the full employer National Insurance due on each employee; the allowance is then set against that liability through the EPS [2]. Most modern UK payroll software generates both returns from a single payrun, but the employer still has to switch the allowance on.
Making the claim through your EPS
The claim itself is a single field. To claim through payroll software, an employer puts Yes in the Employment Allowance indicator field the next time it sends an EPS to HMRC [4]. No separate application, letter, or online form is needed: the indicator is the claim [1].
Before setting the indicator, an employer should confirm it is eligible. The allowance is available to businesses, charities, and community amateur sports clubs, and to people who employ a care or support worker [6]. It cannot be claimed by a public body, by a business doing more than half its work in the public sector unless it is a charity, or by a company whose only employee paid above the secondary threshold is a single director [6]. For the 2025 to 2026 tax year and later there is no limit on the employer's Class 1 National Insurance liability, so the previous £100,000 cap no longer restricts who can claim [7].
Where to find the indicator in your software
The exact location of the Employment Allowance indicator varies by software, but the setting is always tied to the EPS rather than the payrun [4]. An employer follows its software's instructions to complete the EPS, and consults HMRC's guidance on what to report in an EPS if it is unsure what belongs in each field [8]. An employer running payroll for a small business usually sets the indicator once at the start of the tax year and lets the software carry the offset through each subsequent payrun.
Employees who cannot be included in the claim
Eligibility is not only about the employer; certain employees are excluded from the calculation. The National Insurance of someone whose earnings fall within the off-payroll working rules, known as IR35, cannot be included in an Employment Allowance claim [7]. Nor can the National Insurance of someone employed for personal, household, or domestic work, such as a nanny or gardener, unless that person is a care or support worker [7].
These exclusions matter most for two groups. A business that engages contractors caught by IR35 has to strip the deemed payments out of its allowance calculation, and a household employing domestic staff generally cannot claim at all, with the care and support worker exception being the main route back in [6]. Confirming which employees count before setting the indicator avoids an over-claim that HMRC would later recover [7].
If your software cannot send an EPS
Not every payroll tool can produce an EPS. Where the software lacks an Employer Payment Summary field, an employer can use HMRC's free Basic PAYE Tools to send the EPS instead [4]. Within Basic PAYE Tools, the employer selects the correct employer, selects Employment Allowance, checks the eligibility criteria, and sends the EPS as normal [4]. This is a common route for the smallest employers, though Basic PAYE Tools has limits that lead many growing employers towards fuller payroll software as headcount rises [9].
Renewing the claim each tax year
The most common Employment Allowance error is assuming the claim carries forward. It does not. The claim has to be made once each tax year, which means an employer sets the indicator afresh at the start of every tax year [2]. An employer that claimed in one year but forgets to set the indicator the next simply does not receive the allowance until it does, and pays the full employer National Insurance in the meantime [1].
There is a safety net for missed claims. An employer can claim the Employment Allowance for the previous four tax years, provided it was eligible in each of those years [7]. For the 2024 to 2025 tax year and earlier, the employer's Class 1 National Insurance liabilities must have been below £100,000 in the previous year to qualify, whereas from the 2025 to 2026 tax year there is no such limit [7]. The previous rates were £10,500 for the 2025 to 2026 year and £5,000 for each year between 6 April 2022 and 5 April 2025 [7]. Accountants recovering missed years across a client base often track this through a multi-client payroll dashboard so no eligible year lapses.
EPS deadlines and how the offset appears
The EPS carries a monthly deadline. An employer should send the EPS by the 19th of the following tax month for HMRC to apply any reduction against what the FPS shows is owed, and each tax month begins on the 6th [2]. An EPS for the tax month running from 6 May to 5 June, for example, should reach HMRC by 19 June [2].
Once the allowance is claimed, it is not paid as a lump sum. It reduces the employer's secondary Class 1 National Insurance each time payroll runs, until the £10,500 has gone or the tax year ends, whichever comes first [1]. An employer with a modest National Insurance bill may take most of the year to absorb the allowance, while a larger employer may exhaust it within the first few months [1].
The table below shows how the offset builds across a simplified year for an employer with £1,500 of employer National Insurance due each month.
| Tax month | Employer NI due | Allowance used this month | Allowance remaining |
|---|---|---|---|
| April | £1,500 | £1,500 | £9,000 |
| May | £1,500 | £1,500 | £7,500 |
| June | £1,500 | £1,500 | £6,000 |
| July onward | £1,500 | continues until £10,500 exhausted | reduces to nil |
After sending the EPS, an employer can view what it has claimed and the balance of what it owes in its HMRC online account, usually within two days, and it pays HMRC by the 22nd of the month, or the 19th if paying by post [2]. Software that embeds payroll compliance through a UK payroll API can reconcile the claimed allowance against the HMRC balance automatically, which reduces the risk of paying National Insurance that the allowance should have covered.
Correcting mistakes and stopping a claim
Errors happen, and the EPS has a correction route. If an employer finds a mistake in an EPS, it sends a corrected EPS as soon as possible [2]. HMRC provides specific guidance on correcting an FPS or EPS, and prompt correction avoids the estimated charges and penalties that can follow a missing or wrong submission [10].
Stopping a claim is a deliberate act, and it is easy to do by mistake. To stop claiming, an employer selects No in the Employment Allowance indicator field in its next EPS [4]. Crucially, an employer should not select No simply because it has reached the £10,500 limit before the year ends, because reaching the limit does not make it ineligible, and it should not select No merely because it is no longer employing anyone, because the allowance stops at the end of the tax year anyway [4].
The consequence of stopping early is significant. If an employer stops its claim before the end of the tax year on 5 April, any allowance already given that year is removed, and the employer has to pay the resulting employer secondary Class 1 National Insurance [4]. An accidental No in the indicator field can therefore create a real liability, which is why the field should only be changed when eligibility genuinely ends [4].
Nil payments and periods of inactivity
The EPS also handles the months when nobody is paid. If an employer does not pay any employees in a tax month, it does not send an FPS; instead it sends an EPS by the 19th after that tax month [2]. An employer that fails to send an EPS in a nil-payment month risks HMRC issuing a notice, estimating what is owed, or charging a penalty [2]. Where an employer knows in advance that it will not pay anyone for between one and twelve months, it can enter the dates in the period of inactivity fields of the EPS [2]. A payroll platform that holds the HMRC Recognised badge produces the EPS automatically and reflects these situations without manual reconfiguration [9].
Conclusion
The Employment Allowance is generous, but it depends on a single administrative act repeated every year. The claim lives in the Employer Payment Summary, it is switched on with one field, and it has to be renewed at the start of each tax year rather than left to roll forward [2]. Once set, the allowance quietly reduces employer National Insurance on each payrun until the £10,500 is spent [1].
The discipline for an employer is therefore twofold: set the indicator afresh each April, and resist changing it mid-year unless eligibility truly ends, because an accidental stop claws back the relief already given [4]. With employer National Insurance now charged at 15%, the annual EPS claim is one of the highest-value routine tasks in the payroll calendar.
Frequently asked questions
Do I have to claim Employment Allowance again every year?
Yes. The Employment Allowance claim must be made once each tax year and does not carry forward automatically [2]. An employer sets the Employment Allowance indicator to Yes in an Employer Payment Summary at the start of each tax year, and if it forgets, it can still claim for up to the previous four tax years where it was eligible [7].
What is the deadline for submitting an EPS?
An Employer Payment Summary should reach HMRC by the 19th of the following tax month, and each tax month starts on the 6th [2]. Sending the EPS by this date lets HMRC apply any reduction, such as the Employment Allowance or statutory pay recovery, against the liability shown on the Full Payment Submission [2].
What happens if I stop my Employment Allowance claim by mistake?
If an employer selects No in the Employment Allowance indicator and stops the claim before the end of the tax year, any allowance already given that year is removed and the employer must pay the resulting employer National Insurance [4]. An employer should not select No just because it has reached the £10,500 limit or is no longer employing anyone, as neither situation ends eligibility for the year [4].
Can I claim Employment Allowance if my payroll software has no EPS option?
Yes. If payroll software cannot send an Employer Payment Summary, an employer can use HMRC's free Basic PAYE Tools to make the claim [4]. Within Basic PAYE Tools, the employer selects the employer, selects Employment Allowance, checks the eligibility criteria, and sends the EPS as normal [4].
