Employment allowance explained

Are you a business owner that employs staff? If so, you may be eligible for a tax relief known as the Employment Allowance. Introduced to ease the burden of employers' Class 1 National Insurance liabilities, the Employment Allowance can be a significant aid for many organisations.​

In this article, we'll break down what the Employment Allowance is, who can claim it, and how you can benefit from this relief.​

The Employment Allowance is a scheme that allows certain employers to reduce their Class 1 National Insurance liability, ultimately saving money on their payroll expenses. It was implemented to support businesses and charities in their efforts to employ staff.​

From 6 April 2025 there are some important changes to the Employment Allowance. ​

From this date the Employment Allowance increases to £10,500 per business, an increase from £5,000 previously. Another key change is that the £100,000 liability cap has now been abolished. Previously, if a business’s total employers’ Class 1 National Insurance liabilities for the previous tax year were more than £100,000 they were not eligible to claim the Employment Allowance. ​

There are still some employers who aren’t eligible to claim the allowance.​

With the abolition of the £100,000 liability cap, more businesses will now qualify for the Employment Allowance. Any business or charity that pays employer Class 1 National Insurance is eligible, regardless of the total amount of National Insurance paid in the previous tax year. Private individuals or families employing care or support workers can also continue to claim.​

If your business or charity is part of a group of connected companies, only one of the companies in the group can claim the Employment Allowance.​

The following employers still can’t claim the Employment Allowance:​

The following employees can’t be included in Employment Allowance claims:​

Previously, businesses in Northern Ireland that received certain types of government financial support had to consider the de minimis state aid rules when claiming Employment Allowance. However, from April 2025, the UK government has removed the requirement for Employment Allowance to be considered as de minimis state aid. This means businesses will no longer have to check whether they exceed state aid limits before claiming.​

The process of claiming the Employment Allowance is relatively straightforward. If you meet the eligibility criteria, follow these steps:​

If you haven’t previously claimed the Employment Allowance, you can still apply for past tax years, up to four years back. However, the maximum allowance differs each year:​

If you’ve missed claiming the Employment Allowance for any of these years, you can contact HMRC to request a refund for previously paid employers' Class 1 National Insurance.​

By taking advantage of this relief, you can free up funds that can be reinvested in growing your organisation or providing additional benefits to your employees.​

However, navigating the Employment Allowance and its intricacies can be daunting, especially for busy entrepreneurs. That's where professional assistance, like the services offered by Beany, can be beneficial. If you're unsure about the Employment Allowance or need help with your tax matters, reach out to experts or book a meeting with one of our team members to guide you through the process and ensure you make the most of this financial relief.​

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant world. ​​We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Book a meeting or sign up today.​