Employment Allowance 2025/26: Key Rules, Strategies, and How to Maximise the Benefit

The Employment Allowance, now set at £10,500 for the 2025/26 tax year, remains an essential relief for employers looking to reduce their National Insurance bill. While this can provide valuable savings, understanding the detailed rules around eligibility, limits, and claim procedures is crucial—particularly for employers with multiple payrolls, company groups, or personal companies.

In this article, we’ll explore how the allowance works, where common pitfalls lie, and how employers can structure their operations to make full use of the benefit.

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What Is the Employment Allowance?

The Employment Allowance enables eligible employers to offset up to £10,500 against their secondary Class 1 National Insurance contributions (NICs) for the 2025/26 tax year. Once claimed, it applies automatically from the start of the tax year until the full allowance is used up.

Key Changes for 2025/26

• Allowance increased from £5,000 to £10,500
• Secondary Class 1 NICs rate increased from 13.8% to 15%
• Secondary threshold reduced from £9,100 to £5,000
• Employers with a NICs bill of £100,000 or more are now eligible to claim (previously excluded)

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Rules for Multiple Payrolls

Employers should be aware that the allowance is per employer, not per payroll. That means:

 If you operate more than one payroll (e.g., weekly and monthly), you can only claim one Employment Allowance.

So, there’s no benefit in splitting staff across multiple payrolls to increase your allowance. It’s a single claim per employer, regardless of how payrolls are structured.

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Groups of Companies – One Allowance Across the Group

For groups of companies, only one employer within the group can claim the Employment Allowance. The group must nominate which company will benefit from it.

If no single employer has a NICs bill of £10,500 or more, the company with the highest NICs liability should claim the allowance to get the maximum benefit.

This avoids wasting part of the allowance in cases where a smaller group member would not use the full amount.

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Personal Companies – Can They Qualify?

Many personal companies, where the only employee is also the sole director, do not qualify for the allowance. This is because one-person director-only companies are excluded from the scheme.

However, there are ways to bring a personal company within scope:

Option 1: Appoint a Second Employee

If a personal company employs at least one additional person, even for a single week, it can qualify for the Employment Allowance.

• The second employee must be paid enough in that week to trigger secondary Class 1 NICs—that’s more than £96 (the weekly threshold for 2025/26).
• Even if NICs are due for only one week in the tax year, this meets the eligibility condition.

Option 2: Director Resignation Strategy

Alternatively, the current sole employee can resign as a director, and another person (such as a spouse or family member) can be appointed director instead.

• If the sole employee is not also a director, the company can qualify for the allowance—provided secondary Class 1 NICs are payable.

⚠️ Important: Be cautious with this strategy, as it can have wider business and legal implications.

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Example: NICs on a £12,570 Director Salary

For a personal company paying its director £12,570 annually (aligned with the personal allowance):

• No employee NICs are due (because this equals the primary threshold)
• But employer NICs of £1,135.50 are due (because the secondary threshold is just £5,000 for 2025/26)
• If no employment allowance applies, the company will need to pay this NICs amount

Additionally, for a year to count towards the state pension, the director must earn at least £6,500 (52 x lower earnings limit of £125 per week). This is above the £5,000 threshold, meaning some NICs are inevitable if the director wants a qualifying year.

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How to Claim the Allowance

The Employment Allowance is not applied automatically—it must be claimed each tax year.

Claim Methods:

Through your payroll software via the Employer Payment Summary (EPS)

Through HMRC’s Basic PAYE Tools if you don’t use a commercial payroll provider

The earlier in the tax year you claim, the more benefit you’ll get from offsetting NICs liabilities.

Backdating Claims:

Employers who were eligible but didn’t claim in previous years can claim for up to four previous tax years.

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Summary: Who Can and Can’t Claim the Employment Allowance

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Final Thoughts

The Employment Allowance offers substantial savings—up to £10,500—especially important as secondary NICs rise to 15% from April 2025. With the rules evolving and eligibility widening, more employers stand to benefit, but only if they actively claim and understand how to structure their payrolls or group entities effectively.

At Merranti Accounting, we help businesses plan payroll, optimise remuneration, and maximise tax reliefs like the Employment Allowance. Whether you’re a small business, a growing company group, or a personal company looking for efficient extraction strategies, our team is here to guide you.

Get in touch today to review your eligibility and make sure you’re claiming everything you’re entitled to. Let’s make your business more tax-efficient together.