Employment Allowance Eligibility: Are you claiming the £10,500 relief?
Written by Sach
The Employment Allowance allows eligible UK employers to reduce their annual Class 1 Secondary National Insurance liability by up to £10,500. Following statutory reforms that increased the allowance from £5,000 to £10,500 and removed the former £100,000 eligibility cap, far more businesses can now claim this valuable tax relief.
At Pennyhills® Chartered Accountants, we conduct regular payroll reviews to ensure our clients claim every pound of relief they are legally entitled to receive, without falling foul of HMRC exclusions.
The Current Rules: What Changed?
Under HMRC PAYE Manual PAYE56000, major legislative changes restructured how the allowance operates:
| Rule Dimension | Previous Framework (Pre-April 2025) | Current Framework (2025/26, 2026/27 & Beyond) |
| Maximum Allowance | £5,000 per year | £10,500 per tax year |
| £100,000 Employer NIC Cap | Restricted to firms with prior-year Secondary Class 1 NIC under £100,000 | REMOVED: Employers of all sizes can claim regardless of total payroll size |
| State Aid Sector Checks | De minimis State Aid sector tracking required | REMOVED: Simplified submission on Employer Payment Summary (EPS) |
| Employer Class 1 NIC Rate | 13.8% | 15% (Secondary threshold starting at £5,000/year) |
Why the £10,500 Figure Matters: With Employer National Insurance sitting at 15% on earnings above the £5,000 Secondary Threshold, a £10,500 allowance completely wipes out the employer NI liability on roughly £70,000 of pay above the threshold—covering the employer NI on approximately 3 to 4 full-time employees on the National Living Wage.
Who Can Claim the £10,500 Employment Allowance?
Who Can Claim the £10,500 Employment Allowance?
- Multi-Employee / Multi-Director Businesses: A company qualifies if it employs at least two people, or two directors, receiving earnings above the Secondary Threshold (£5,000 per annum / £417 per month).
- Charities & CASCs: Recognised charities and Community Amateur Sports Clubs qualify across all their payroll schemes.
- Connected Companies Rule: If a business controls or is connected to other companies, the group is entitled to only one £10,500 allowance across all connected PAYE schemes.
Key Exclusions: Who CANNOT Claim?
HMRC strictly denies the Employment Allowance in the following scenarios:
Single-Director Companies: If the company’s only employee paid above the £5,000 Secondary Threshold is a single director, the company cannot claim the Employment Allowance. Adding a genuine second employee or second director paid above the threshold unlocks the full £10,500 allowance for the entire tax year.
Public Sector Bodies: Organizations carrying out functions wholly or mainly of a public nature (unless operating as a registered charity).
Off-Payroll Working (IR35): Workers supplied via Personal Service Companies under inside-IR35 rules cannot be included when calculating or claiming the allowance.
Domestic Employees: Hiring personal staff like nannies or gardeners (unless providing specialized care or support work).
Backdating Unclaimed Allowances (Up to 4 Tax Years)
- The Employment Allowance does not auto-renew; it must be claimed each April through your payroll software by setting the Employment Allowance flag to “Yes” on an Employer Payment Summary (EPS).
If your business was eligible in previous tax years but failed to claim, HMRC rules permit retroactive claims for up to four prior tax years:
2025/26 & 2026/27: Up to £10,500 per tax year
2022/23, 2023/24 & 2024/25: Up to £5,000 per tax year
For a growing company that was previously blocked by the old £100,000 NIC cap, reviewing historical eligibility can generate significant tax overpayment refunds from HMRC.
How Pennyhills® Chartered Accountants can help Maximise Your Reliefs
Pennyhills® Chartered Accountants is both an ACCA and ICAEW member firm, our payroll specialists verify connected company rules, check single-director thresholds, and submit historical backdated claims to optimise your business cash flow.
📲 Unsure if your firm qualifies for the £10,500 allowance or missed out on historical claims?
We are passionate about helping employers maximising tax reliefs and keep compliant.
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employment-allowance-eligibility-hmrc-payroll-guide
Guide to the £10,500 HMRC Employment Allowance. Learn how the removal of the £100,000 cap affects your business, single-director exclusions, and backdating rules.