Employment Allowance 2025/26 – Reduce Your Employer National Insurance by £5,000
If you run a limited company and employ staff, you may be entitled to claim Employment Allowance — a valuable tax relief that reduces your Employer’s National Insurance (NI) bill.
For the 2025/26 tax year, eligible businesses can reduce their Employer NI liability by up to £5,000 per year.
For many small businesses, that’s real cash flow support.
What Is Employment Allowance?
Employment Allowance allows eligible employers to reduce their annual Class 1 Employer National Insurance contributions.
Instead of paying the full employer NI amount due through payroll, your liability is reduced until the £5,000 allowance is used up.
It’s not a grant.
It’s not repayable.
It’s simply a reduction in tax you would otherwise pay.
Who Can Claim?
You can claim if:
- Your total Employer Class 1 NI liability was under £100,000 in the previous tax year
- You employ at least one person paid above the Secondary Threshold (£9,100 for 2025/26)
- You are not a public body (unless you’re a charity)
- You are not a sole director company where the director is the only employee paid above the threshold
You cannot claim if:
- You are self-employed with no employees
- Your company only pays one director and no other qualifying employees
- Your employer NI exceeded £100,000 last tax year
Common Scenario
Many small limited companies pay:
- Director salary at £9,100
- One employee on part-time or full-time wages
In this case, the company is often eligible and could eliminate most or all of its employer NI for the year.
That’s a straightforward £5,000 saving if you qualify.
How to Claim
Claiming is done through payroll software by submitting an Employer Payment Summary (EPS) to HMRC.
Once claimed:
- The allowance automatically offsets your employer NI
- It continues until the £5,000 is fully used
- It must be claimed each tax year
If you miss claiming it early in the year, it can still be applied retrospectively within the same tax year.
Why It Matters
For growing businesses, this relief can:
- Reduce payroll costs
- Support hiring decisions
- Improve cash flow
- Fund training or investment
- Offset rising employment costs
In a year where employer NI rates have increased, ensuring you claim Employment Allowance is more important than ever.
A Quick Reminder
Not all small companies qualify — particularly single-director companies.
If you’re unsure whether you’re claiming correctly, it’s worth reviewing your payroll setup.
At GMS, we check eligibility each tax year as part of our payroll review process to ensure clients don’t miss out.
Need Help?
If you’d like us to review whether your business qualifies for Employment Allowance for 2025/26, just get in touch.
It’s a simple check — and potentially a £5,000 saving.
Written by Graham Wesson
Director – GMS Business Accountants
Specialist in SME tax and business advisory
