The Institute of Chartered Accountants in England and Wales (ICAEW) is urging employers to revisit the Employment Allowance this year. If you run a payroll but haven’t yet claimed this generous incentive, you could reduce your employer National Insurance contributions (NICs) by up to £10,500 for the 2025/26 tax year.

This would be a significant boost for the cash flow of most businesses!

With over 1.2 million employers benefiting from the allowance in 2024/25, this is a well-established scheme. Yet many small or newer businesses, especially those unfamiliar with payroll tax reliefs, may still be missing out.

What is the Employment Allowance?

The Employment Allowance is a government scheme designed to reduce the cost of employing staff. It cuts your business’s annual Class 1 National Insurance bill by up to £10,500 for 2025/26, applied automatically through your payroll system.

Key points:

• The allowance only reduces the employer’s NIC liability; it doesn’t affect employees’ NICs.
• The benefit is felt in real time as you process your payroll.
• The maximum claimable amount for the current tax year (2025/26) has more than doubled from former years.

Who Can Claim?

Most employers are eligible, including:

• Limited companies.
• Sole traders with employees.
• Charities.
• Individuals employing a care or support worker.

However, you cannot claim if:

• You are a public body undertaking mostly public sector work (except charities).
• You operate a single-director company with no other paid employees.
• Employees are paid under the off-payroll working rules.
• You employ household workers such as nannies or gardeners (unless they’re care or support workers).

If your business is connected to others (for example, within a group, or family of companies), you may only claim once across the group. The rules governing “connected” companies can be complex, so seek professional advice if you’re unsure.

What’s New for 2025/26?

The 2025/26 tax year brings several significant changes:

• Increased Allowance: The Employment Allowance is now up to £10,500 per employer (previously £5,000).
• Wider Access: Restrictions that once prevented many larger businesses from claiming have been relaxed.
• Simplified State Aid: The allowance is no longer considered de minimis state aid, making compliance simpler, particularly for businesses trading with the EU.

Can You Claim for Past Years?

If you haven’t claimed in previous years and were eligible, you can go back up to four tax years. For example, you have until 5 April 2026 to claim for the 2021/22 tax year. 

However, eligibility rules have changed over time, so check the detail for each year or contact your payroll adviser for help.

Action Points for Small Business Owners

1. Check your eligibility: Are you a business, charity, or care employer? Is your company structure eligible?
2. Claim through your payroll: Most payroll software allows you to tick a box to claim the allowance—ask your payroll provider for guidance if unsure.
3. Review previous years: If you weren’t aware of this relief and think you might have qualified, it’s not too late to claim retrospectively for up to four years.
4. Seek professional advice: If you have complex group structures, linked companies, or are unsure about eligibility, get in touch with your accountant or payroll service.

In summary…

Claiming the Employment Allowance is a straightforward way to give your business a welcome financial boost. Whether you’re a start-up or an established employer, make sure you’re not leaving cash on the table. If you would like any help reviewing your situation, please get in touch.