How to Claim Employment Allowance: A Step-by-Step Guide

/Published:25th October 2025/inKnowledge, Running a business, Tax
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Employment Allowance is a valuable government scheme that allows eligible employers to reduce their annual National Insurance contributions (NICs) by up to £5,000. If you run a small business or charity, claiming Employment Allowance can significantly lower your employment costs. Here’s everything you need to know to claim it successfully.

What Is Employment Allowance?

Employment Allowance is a government initiative aimed at reducing the financial burden on small businesses, charities, and community amateur sports clubs (CASCs) by offering a reduction in their National Insurance Contributions (NICs). This allowance allows eligible employers to reduce the amount of employer NICs they are required to pay, helping to lower overhead costs and increase the affordability of hiring staff.

  • Amount: Employers can claim up to £5,000 per tax year, which can make a significant difference to smaller businesses and organisations with a limited budget. The allowance is applied against the employer’s NICs liability, meaning that businesses will only need to pay their NICs once this allowance is used up.
  • Purpose: The main goal of Employment Allowance is to support the growth and sustainability of small businesses, charities, and community groups by incentivising employment and making it more cost-effective for employers to hire and retain staff. By reducing the amount payable in employer NICs, businesses have more room to reinvest in their operations, expand their workforce, or allocate funds elsewhere within their organisation.

Not only does this provide immediate relief for businesses facing rising operational costs, but it also aims to foster job creation and improve the overall economic environment for employers in the UK.

In addition to providing a financial benefit, Employment Allowance helps businesses remain compliant with UK tax laws by making it easier to meet NIC obligations. This is particularly beneficial for small businesses that may struggle with fluctuating income levels or cash flow.

Who Is Eligible for Employment Allowance?

To qualify for Employment Allowance, businesses need to meet certain conditions:

  • Size of the business: Typically, small businesses with an annual employer NICs bill under £100,000 are eligible.
  • Type of business: Charities, small businesses, and community amateur sports clubs can apply for the allowance. However, businesses in certain sectors, such as those with directors as the only employees or those in the public sector, may not qualify.

How to Claim Employment Allowance

Step 1: Check Your Eligibility

Before you can claim Employment Allowance, it’s important to confirm that your business meets the eligibility criteria. The allowance is designed to benefit small businesses, charities, and community amateur sports clubs, but not all businesses qualify.

To determine if your business is eligible, consider the following key factors:

  • Employer NICs Bill: Your business must have an annual employer National Insurance Contributions (NICs) bill of less than £100,000. This typically applies to small and medium-sized businesses.
  • Type of Business: Certain types of organisations are eligible, such as small businesses, charities, and community amateur sports clubs (CASCs). However, businesses with only directors as employees, or those in the public sector, do not qualify.
  • No Previous Claims: If you’ve already claimed the allowance in previous tax years, you’ll need to check if there have been any changes in your business’s circumstances that may affect your eligibility.

To make sure you’re on the right track, you can consult HMRC’s official guidance on the Employment Allowance, which provides a checklist and detailed information on who can and cannot claim. If you’re still unsure, it’s a good idea to speak with an accountant or payroll professional who can assess your specific situation and advise you on your eligibility.

By ensuring your business meets the criteria before you start the application process, you can avoid complications or delays when making your claim.

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Step 2: Enable the Allowance in Your Payroll Software

Once you’ve confirmed your eligibility, the next step is to enable the Employment Allowance within your payroll software. Most modern payroll systems have a built-in option to apply for this allowance, simplifying the process.

To enable Employment Allowance in your software, follow these steps:

  1. Access the Employer NICs Section:
    • Navigate to the section within your payroll software that deals with employer National Insurance Contributions (NICs). This section is where you’ll input your allowance details.
  2. Select “Yes” to Indicate You’re Claiming Employment Allowance:
    • There will typically be a prompt or checkbox asking whether your business is claiming Employment Allowance for the current tax year. You’ll need to select “Yes” to confirm that you’re making the claim.
  3. Choose the Business Type:
    • Depending on your business type, you may need to select the correct category. Options usually include:
      • Business
      • Charity
      • Community Amateur Sports Club (CASC)
    • Select the option that accurately represents your organisation, as this will ensure the correct amount of relief is applied.

Once these details are filled out, your payroll software will calculate your potential savings and apply the allowance to your employer NICs liability.

Step 3: Submit Your Employer Payment Summary (EPS)

After enabling Employment Allowance, you must inform HMRC about your claim. This is done by submitting an Employer Payment Summary (EPS) through your payroll software.

  • The EPS is a key document that notifies HMRC that you’re claiming the allowance for the current tax year.
  • The submission will include details of your total NICs liability and the amount of the Employment Allowance being claimed.
  • It’s important to submit the EPS as soon as possible after enabling the allowance in your payroll system, as this ensures HMRC has accurate information and updates your tax records accordingly.

Step 4: Adjust Your Payments to HMRC

Once your claim has been approved and HMRC has processed your EPS, you’ll need to adjust your payments to HMRC.

  • How the Adjustment Works: After the allowance is applied, your total employer NICs liability will be reduced by up to £5,000 for the tax year. This means you won’t need to pay the full amount of employer NICs until the allowance is exhausted.
  • Ongoing Payments: For each pay period, your payroll software will automatically calculate the reduced amount of NICs you owe. As long as you haven’t reached the £5,000 cap, your payments to HMRC will continue to be reduced.

Once the £5,000 allowance has been fully used up, your regular NICs payments will resume, and you’ll be required to pay the full amount again.

By following these steps, you can efficiently claim the Employment Allowance, reduce your employer NICs liability, and help manage your business’s cash flow more effectively throughout the year.

When to Claim Employment Allowance

Employment Allowance can be claimed at any point during the tax year, but there are a few important considerations to keep in mind regarding timing and usage.

  1. Claim at Any Point in the Tax Year:
    • You are free to claim the allowance at any time during the tax year, meaning there’s flexibility in when you choose to apply for it. However, it’s recommended to claim as soon as possible to start benefiting from the reduction in your employer NICs.
  2. Non-Backdating:
    • Employment Allowance cannot be backdated. If you didn’t claim the allowance at the start of the tax year, you won’t be able to apply it retroactively for previous months. The allowance only applies from the point it’s claimed forward. This is important to note, as delaying the claim means missing out on potential savings for the months before it’s activated.
  3. Use It or Lose It:
    • The £5,000 limit is based on the current tax year, and if you do not use the full allowance by the end of the tax year, you will lose any unused portion. The remaining balance cannot be carried over to the next tax year, so it’s important to ensure that you’re making the most of the allowance throughout the year.
    • If your NICs bill doesn’t reach the £5,000 cap, that’s okay—you just won’t use the full allowance, and the leftover amount won’t be refunded or carried forward.

For businesses with fluctuating employee numbers or NICs bills, it’s a good idea to monitor your eligibility and usage of Employment Allowance regularly to ensure you’re maximising the benefit while the allowance is active.

Common Mistakes to Avoid

While claiming Employment Allowance can provide significant financial relief, it’s important to avoid common mistakes that could delay or invalidate your claim. Here are a few key pitfalls to be aware of:

  1. Not Checking Eligibility:
    • Mistake: Many businesses claim Employment Allowance without thoroughly checking if they meet the eligibility criteria.
    • What to Do Instead: Before claiming, ensure your business qualifies. Review the eligibility requirements, including your employer NICs bill and business type (e.g., charity, small business, or community amateur sports club). If you’re unsure, consult HMRC’s official guidance or speak with an accountant. Failing to confirm eligibility could result in your claim being rejected or an incorrect amount being applied.
  2. Failing to Notify HMRC Properly:
    • Mistake: Submitting an incorrect or incomplete Employer Payment Summary (EPS) is a common mistake. This can cause delays in your claim or lead to HMRC rejecting it.
    • What to Do Instead: Double-check that your EPS is complete and accurate before submission. Ensure that you’ve selected the correct business type, indicated that you’re claiming Employment Allowance, and provided the proper details. If anything is missing or incorrect, HMRC won’t process your claim, and you may have to submit a corrected EPS, which could delay the benefit of the allowance.
  3. Claiming When Ineligible:
    • Mistake: Claiming the allowance when your business doesn’t meet the eligibility criteria can lead to serious consequences, including penalties or the need to repay any funds received.
    • What to Do Instead: If your business doesn’t qualify, refrain from making the claim. If you’re uncertain about your eligibility, it’s best to seek professional advice before submitting. If you make an ineligible claim and it’s discovered, HMRC may ask for repayment and impose penalties, which can be costly for your business.

By taking the time to carefully check your eligibility, ensure your EPS is accurate, and avoid making claims when you’re not eligible, you can ensure a smoother process and avoid unnecessary complications down the line.

How Accounting Wise Can Help

At Accounting Wise, we specialise in helping small businesses maximise their savings. We can guide you through the process of claiming Employment Allowance and ensure compliance with HMRC requirements.

Claiming Employment Allowance is a straightforward way to reduce your NICs bill and free up funds for other business needs. By understanding the eligibility criteria and following the steps outlined, you can take full advantage of this benefit.

Reduce your National Insurance bill the smart way — let Accounting Wise help you claim your Employment Allowance today.

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Employment Allowance: Frequently Asked Questions

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Employment Allowance is a UK government scheme that lets eligible employers reduce their annual National Insurance contributions (NICs) by up to £5,000 per tax year.

Small businesses, charities, and community amateur sports clubs (CASCs) with an employer NICs bill under £100,000 are typically eligible. Companies where only directors are paid are not eligible.

You can claim Employment Allowance through your payroll software by selecting “Yes” to indicate you’re claiming and submitting an Employer Payment Summary (EPS) to HMRC.

You can claim at any point during the tax year, but it’s best to claim early to maximise your savings. The allowance cannot be backdated or carried forward.

The allowance reduces your employer NICs liability by up to £5,000. Once the allowance is used up, you resume paying the full amount of NICs.

Yes. You can claim the allowance each tax year as long as your business continues to meet the eligibility criteria.

Yes. You must confirm eligibility and re-enable the allowance in your payroll software each tax year to continue receiving it.

No. Companies where the only employees are directors paid through PAYE do not qualify for the allowance.

HMRC may ask you to repay any benefit received and could issue penalties. Always check eligibility or speak to an accountant before claiming.

No. Your payroll software automatically stops applying the allowance once the £5,000 limit has been reached for the tax year.

Glossary of Key Employment Allowance Terms

Employment Allowance  
A government scheme that allows eligible employers to reduce their annual National Insurance contributions (NICs) bill by up to £5,000.

National Insurance Contributions (NICs)  
Payments made by employers and employees to fund state benefits such as pensions and statutory payments.

Employer NICs  
The portion of National Insurance paid by the employer based on employees’ earnings above a set threshold.

Community Amateur Sports Club (CASC)  
A non-profit sports organisation that receives certain tax benefits, including potential eligibility for Employment Allowance.

Payroll Software  
A digital system used to manage employee pay, tax, and NICs. It allows employers to apply for Employment Allowance directly.

Employer Payment Summary (EPS)  
A report submitted to HMRC through payroll software to claim Employment Allowance or notify changes in employment-related payments.

HMRC (His Majesty’s Revenue and Customs)  
The UK government department responsible for tax collection and administration of Employment Allowance claims.

Tax Year  
The UK tax year runs from 6 April to 5 April the following year. Employment Allowance applies per tax year and resets annually.

Eligibility Criteria  
The set of conditions a business must meet to claim Employment Allowance, including having an annual NICs bill under £100,000.

Payroll Submission  
The process of reporting pay and tax information to HMRC via Real Time Information (RTI), including claims for Employment Allowance.

Allowance Cap  
The maximum amount (£5,000) that can be claimed through Employment Allowance in a single tax year.

Director-Only Company  
A company where the only employees are directors. These businesses are not eligible for Employment Allowance.

NICs Liability  
The total amount of employer National Insurance due before any allowances or reductions are applied.

HMRC Compliance  
Ensuring that all claims, reports, and payments meet HMRC’s rules and deadlines.

Claim Renewal  
The annual process of confirming eligibility and reapplying for Employment Allowance in your payroll software.
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