How to Claim Employment Allowance: Step by Step
Claiming the Employment Allowance takes one field in a payroll submission, yet the relief is worth up to £10,500 per tax year against employer secondary Class 1 National Insurance [1]. Around 1,418,000 employers made a successful claim in the 2025 to 2026 tax year [2].
The mechanism is an Employer Payment Summary carrying the Employment Allowance indicator set to Yes [3]. HMRC sends no confirmation letter when a claim succeeds, and an automated rejection arrives within five working days if it fails [4].
That silence is why claims go wrong quietly. A claim never made, a claim not renewed at the start of a tax year, or a claim set against the wrong PAYE scheme produces no error message and no prompt. The employer simply pays National Insurance it did not owe.
This guide covers the claim through commercial payroll software, the route through HMRC Basic PAYE Tools, claiming part-way through a year, backdating up to four years, the state aid questions attached to historic claims, and how to stop a claim correctly.
Key takeaways
- A claim is made by setting the Employment Allowance indicator to Yes on an Employer Payment Summary.
- The claim must be renewed at the start of every tax year, since it does not roll forward automatically.
- Claims can be made at any point in the tax year and applied retrospectively to liabilities from 6 April onwards.
- Backdated claims are possible up to four years after the end of the tax year concerned, with a separate submission for each year.
- De minimis state aid questions apply only to claims covering earlier tax years, not to current-year claims.
- Stopping a claim mid-year removes the whole year's allowance and makes the covered National Insurance repayable.
Before making the claim
Two checks belong before the submission rather than after it.
The first is eligibility. An employer must have employer Class 1 National Insurance liabilities, and must not be a public authority that is not a charity, an employer of domestic staff, a connected company that is not the nominated claimant, or a limited company whose sole director is the only person paid above the Secondary Threshold [5]. The Secondary Threshold sits at £96 per week, £417 per month or £5,000 per year, and employer National Insurance runs at 15% above it [6].
The second is scheme selection. An employer with more than one PAYE scheme claims against one scheme only, and cannot move the claim to a different scheme during the tax year [7]. HMRC's guidance is to nominate the scheme most likely to carry at least £10,500 of employer Class 1 liability across the year, so the allowance is used as fully as possible [7].
Getting the second check wrong is expensive and difficult to reverse. The claim can be stopped at the end of the tax year and a different scheme nominated in the new year, but only before any National Insurance or PAYE payments have been made [7]. Bureaux managing this decision across a client portfolio usually record the nomination at scheme level in their multi-client payroll dashboard rather than rediscovering it each April.
Claiming through payroll software
For an employer using commercial payroll software, the claim is a single setting.
- Confirm eligibility against the current HMRC criteria.
- Open the Employer Payment Summary settings in the payroll software.
- Set the Employment Allowance indicator field to Yes [3].
- Send the Employer Payment Summary to HMRC as normal.
- Continue running payroll, allowing the software to offset the allowance against employer secondary Class 1 liability at each payrun.
The Employer Payment Summary is the Real Time Information submission used to report figures that do not sit on a Full Payment Submission, including statutory pay recoveries, periods of no payment, and the Employment Allowance claim [8]. It travels through the same Real Time Information channel as the Full Payment Submission, so no separate registration is needed.
How the offset behaves after submission
The allowance becomes usable as soon as the claim is submitted [4]. From that point, the amount claimed in each payment period must match the employer secondary Class 1 liability for the same period, subject to the annual maximum [7].
An employer with £1,050 of monthly employer National Insurance exhausts the £10,500 by month ten and pays the liability for months eleven and twelve in full [7]. Reaching the limit early is normal and does not affect eligibility, so the indicator should be left at Yes rather than switched off [3].
One ordering rule matters at the calculation stage. The Employment Allowance is deducted from employer secondary Class 1 liability before any other amount, including recoverable Statutory Maternity Pay [7]. Payroll software carrying the HMRC Recognised badge applies that sequence automatically and reflects each new tax year's thresholds without manual reconfiguration.
Where a single scheme runs on two payroll systems
Some employers run a weekly payroll on one system and a monthly payroll on another, both under the same PAYE reference. The claim attaches to the PAYE reference, and the allowance is used against the total Class 1 liability for that scheme month by month until £10,500 is reached, regardless of how many payrolls feed it [7].
The risk is double counting. Each system may permit a claim independently, and the combined total must not exceed £10,500 [7]. Employers in that position need a single running tally outside both systems, or a consolidated payroll engine that holds the balance in one place.
Claiming through HMRC Basic PAYE Tools
Where payroll software has no Employer Payment Summary facility, HMRC Basic PAYE Tools can be used to make the claim, and there is no limit on employee numbers for this route [7].
For a current-year claim, the sequence is short [3].
- Select the correct employer name in the Employer menu on the home page.
- Select Employment Allowance.
- Check the eligibility criteria on the page and in the linked guides.
- Send the Employer Payment Summary as normal.
Sending the submission itself follows a separate path through the tool [9].
- On the Employer details page, select View outstanding submissions.
- On the Outstanding submission details page, select Send all outstanding submissions.
- Select Next to reach the Submission authentication page.
- Enter the Government Gateway user ID and password.
Basic PAYE Tools must be updated to submit a claim, because the allowance does not renew automatically from one year to the next [9].
The record-keeping burden of the split approach
An employer that uses Basic PAYE Tools purely to claim, while running payroll on other software, must keep its own record of how much allowance has been used across the tax year [7]. Nothing reconciles the two systems automatically.
That manual tally is the most common source of over-claiming among smaller employers. Occasional employers who need compliant output without running a full payroll cycle often find an online payslip generator or a one-off HMRC-compliant payslip a cleaner fit than maintaining two parallel systems.
Claiming part-way through the tax year
A claim can be made at any point in the tax year, provided the employer has employer Class 1 liabilities and is eligible [7]. Claiming earlier simply means receiving the benefit sooner [3].
A mid-year claim reaches backwards. Where an employer claims in the middle of the year having already incurred liabilities in earlier months, the allowance can be applied to those liabilities from the start of the tax year onwards until the limit is reached [7].
Where the employer has already paid its employer Class 1 liability in full and claims late in the year, a credit may sit on the PAYE record. HMRC applies that balance against any PAYE debt or other liabilities arising in the following tax year, and where none exists the employer can claim the allowance as a repayment [7].
| Timing of claim | Effect |
|---|---|
| At the start of the tax year | Allowance offsets liability from the first payrun onwards |
| Mid-year, liabilities unpaid | Allowance applied retrospectively from 6 April until the limit is reached |
| Late in the year, liabilities already paid | Credit sits on the PAYE record and is offset against future liabilities or repaid |
| After the tax year has ended | Offset against outstanding current or future PAYE liabilities, or repaid on request |
Backdating a claim to earlier tax years
A claim can be made up to four years after the end of the tax year to which the allowance relates [7]. For the tax year 2022 to 2023, which ended on 5 April 2023, the deadline is 5 April 2027 [7].
Each historic year needs its own Employer Payment Summary, and previously reported figures such as statutory payments do not need to be resubmitted [7]. Where a claim is sent one year after a tax year has ended, it continues into the current tax year unless a claim is already in place for that year [7].
Backdating is worth reviewing whenever a company's payroll composition has changed. A business that added a second above-threshold earner part-way through an earlier year became eligible for the whole of that year, and may never have claimed [10]. The allowance values differ by year, so the recoverable amount is not uniform.
| Tax year claimed for | Annual allowance |
|---|---|
| From April 2020 | £4,000 |
| From April 2022 | £5,000 |
| From April 2025 | £10,500 |
The de minimis state aid questions
Claims covering earlier tax years may trigger state aid questions that do not apply to current-year claims [3]. From April 2020 the allowance operated as de minimis state aid, meaning an employer needed room within its relevant de minimis limit to accommodate the full amount [11].
Where the rules apply, the employer must select the business sectors that apply to it, even where the business makes no profit [3]. Most businesses select the Industrial or other category, which covers examples such as a hair salon or a restaurant [3]. Where the rules do not apply, the answer to the state aid question is simply No [3].
Limits are calculated in euros and vary by sector, with lower ceilings applying to agriculture and fisheries than to general industry [12]. An organisation not engaged in economic activity, such as a charity, falls outside the de minimis rules altogether while remaining eligible for the allowance [12].
Where a sector has been selected on a historic claim, HMRC issues a letter confirming that the allowance counts as de minimis state aid, and that letter must be retained because it may be needed when applying for other de minimis aid [4].
Renewing, stopping and correcting a claim
The claim must be renewed for each new tax year through a fresh Employer Payment Summary [7]. This is the single most common failure point, because nothing in the payroll cycle prompts it and no rejection message follows an omission.
A change of payroll software mid-year does not require a second submission, although the new software may need one to register the claim in its own records [7]. Bureaux migrating client schemes should confirm the indicator carried across rather than assuming it did, and factor that check into the per-payslip cost modelling for a migration.
When to set the indicator to No
The indicator should be set to No only where the employer has genuinely stopped being eligible [3]. HMRC names two situations that are not grounds for stopping [3].
| Situation | Stop the claim |
|---|---|
| The £10,500 limit is reached before the year ends | No, this does not affect eligibility |
| The employer no longer employs anyone | No, the allowance stops at the end of the tax year anyway |
| The business becomes a public authority or otherwise loses eligibility | Yes |
| A connected company arrangement means another entity should claim | Yes, at the appropriate point |
Stopping a claim before 5 April removes any allowance given that year, and the employer must pay the resulting employer secondary Class 1 National Insurance [3]. Where PAYE was not paid in full and on time, late payment penalties can follow once the claim has stopped [7].
Employers exempt from filing online notify a stopped claim using a paper Employer Payment Summary [7].
Records to keep
Records supporting the claim must be kept for at least three years after the end of the tax year in which the allowance was claimed, and must show why the employer was entitled, how much allowance was used or repaid, and which liabilities it covered [7].
For most employers those records fall out of Real Time Information submissions as a by-product, alongside the year-end documentation produced at the close of the tax year. For employers claiming through Basic PAYE Tools while running payroll elsewhere, the record has to be constructed deliberately.
Conclusion
The claim itself is trivial. Everything demanding about the Employment Allowance sits either side of it: choosing the right PAYE scheme before submission, remembering to renew each April, and resisting the instinct to switch the indicator off when the limit is reached or the payroll empties.
HMRC's silence on successful claims puts the burden of verification on the employer. A short annual check, confirming that the indicator is set, that the nominated scheme still carries the largest liability, and that no connected company has claimed in parallel, costs minutes and protects a £10,500 line. Employers unsure whether their current setup handles the renewal automatically can speak to the Moonworkers team before the start of the next tax year rather than after it.
Frequently asked questions
Does HMRC confirm that an Employment Allowance claim has been accepted?
No confirmation letter is issued for a successful claim. The allowance can be used from the moment the claim is submitted. If the claim is rejected, an automated message arrives from HMRC within five working days. The practical implication is that an employer should verify the indicator was actually transmitted rather than waiting for positive acknowledgement that will never come.
What happens if an employer forgets to renew the claim at the start of a new tax year?
The allowance is simply not applied, and employer secondary Class 1 National Insurance is paid in full until a claim is made. The position is recoverable. A claim submitted later in the year applies retrospectively to liabilities from 6 April onwards, and a claim submitted after the year has ended can be offset against outstanding or future PAYE liabilities, or repaid where no liabilities remain.
Can an employer claim the Employment Allowance against more than one PAYE scheme?
No. Only one allowance is available per employer regardless of how many PAYE schemes exist, and it must be set against a single nominated scheme. Where an incorporated business does not use the full amount against that scheme, the remainder cannot be transferred elsewhere. Unincorporated businesses can request that an unused balance is set against another of their schemes after the tax year ends.
Do the state aid questions apply when claiming for the current tax year?
The de minimis state aid questions attach to claims covering earlier tax years, where the allowance operated as de minimis aid from April 2020. For a current-year claim through payroll software, the process is limited to setting the Employment Allowance indicator to Yes on the Employer Payment Summary. Employers making a backdated claim should expect the sector selection question and should retain the confirmation letter HMRC issues afterwards.
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