UK Employment Allowance 2025/26 helps small businesses in the UK reduce their National Insurance (NIC) payments, with the allowance now increased to £10,500, making it easier for small employers to benefit. Many small businesses miss out because they are not aware that they qualify.
How the UK Employment Allowance 2025/26 Works?
The UK Employment Allowance 2025/26 reduces reduces the employer’s NIC liability by up to £10,500 each tax year. It’s applied automatically through payroll software until the full allowance is used. It doesn’t affect employee contributions, and you only need to apply once per year.
Example for 2025/26
Let’s say a small retail company faces a monthly employer NIC payment of £2,100, here is what happens:
– From April to August, they apply the allowance against NICs, covering the full £10,500.
– From September onwards, they resume making regular NIC payments once the allowance is used up.
This makes the allowance especially valuable early in the tax year for cash flow relief.
Who Can Claim the UK Employment Allowance?
Most small UK businesses can apply for this allowance, including:
– Limited companies
– Charities and non-profit organizations
– Sole traders with employees
– Individuals hiring support workers or caregivers
Who Cannot Claim Employment Allowance?
Some employers are not eligible:
– Public sector employers (unless also registered as charities)
– Companies with only one employee who is also the sole director
– Employers paying workers under IR35 rules
– Households that hire domestic help (like nannies or gardeners), unless they are care workers
🚫Note: If a business has multiple payrolls or is part of a group of connected companies, only one claim can be made per group.
What’s New in 2025/26?
The UK Employment Allowance 2025/26 updates provide several significant improvements for employers:
– The allowance limit raised to £10,500.
– Previous size limits for larger employers have been removed, resulting larger employers may now qualify.
– The allowance will not count as state aid, making it easier for businesses to claim.
These updates align with National Insurance increases from the Autumn Budget 2024, easing cost burdens for employers.
Backdating Claims
Businesses can backdate Employment Allowance claims for up to four tax years. Here are deadlines for recent tax years:
– 2021/22: Claim by 5 April 2026
– 2022/23: Claim by 5 April 2027
– 2023/24: Claim by 5 April 2028
– 2024/25: Claim by 5 April 2029
– 2025/26: Claim by 5 April 2030
👉When claiming for earlier years, check the specific rules for those tax years.
How to Apply
Employers can apply through their payroll software, usually with a single checkbox or prompt. You can also apply via HMRC’s Basic PAYE Tools if not using third-party payroll systems. For more information, visit the official HMRC Employment Allowance guide.
Why Many Small Businesses Miss Out
Although the allowance is widely available, many small businesses miss out simply because they aren’t aware they qualify. This is often because, business owners wrongly assume it’s only meant for larger employers. However, most small employers can benefit. Therefore, don’t leave money unclaimed—it could support hiring, ease cash flow, or reduce overhead costs.
Common Mistakes to Avoid
❌ Incorrectly claiming when you’re a sole director with no other staff
❌ Forgetting to tick the Employment Allowance box in your payroll software—this is one of the most common oversights
❌ Assuming you’re still not eligible just because you were ineligible in the past
❌ Failing to reapply in a new tax year when it’s required
🟢 Tip: Always confirm your eligibility, update payroll settings, and consult your accountant or provider to avoid delays or HMRC queries.
Finovate Insights
The UK Employment Allowance 2025/26 offers real savings, especially for small businesses managing tight margins. With simpler rules and a higher limit, this is an ideal time to check eligibility—even if your business didn’t qualify before.
Need Help?
At FINOVATE, we help businesses across the UK, US, and Canada manage payroll, accounting, and tax compliance with confidence. Let us handle the details while you focus on growth.
