Employment Allowance - Are You Eligible?

Employment allowance is one of those things that sounds straightforward at first. It can help cut down your National Insurance bill and put a bit of breathing room in your budget, but for many business owners, knowing whether you’re allowed to claim it isn’t always clear. This is especially true towards the end of the year, when you're preparing payroll for January and thinking ahead to changes in April. From what we've seen helping businesses across Kent, including those searching for experienced accountants,  it’s easy to miss this kind of relief without someone walking you through it. That’s why we've broken things down. We’ll cover who’s allowed to claim, how it works, and what to look out for as the new tax year approaches.

Who can claim employment allowance?

Most small and medium-sized businesses can apply, but there are some rules that confuse people. If you employ staff and pay Class 1 National Insurance contributions, that’s a strong starting point. You must run payroll through PAYE and have at least one employee on the books who isn’t also the sole director.

These are the most common restrictions that stop people from qualifying:

• Your business only has one employee and that employee is also the only director

• You’re doing more than half your work in the public sector, like with NHS contracts or local councils

• You’ve hired staff, but they don’t earn enough to pay Class 1 secondary NICs

It’s not just new businesses that struggle with this. Even well-established companies can run into issues if they’ve changed payroll schemes or staffing structures over the past year. It’s especially worth double-checking if you’ve brought on freelancers, updated your company setup, or switched payroll providers recently.

What does the employment allowance give you?

Employment allowance can cut your National Insurance bill by up to £10,500 per year. It doesn’t sound like much if you only look at it month by month, but it adds up over the course of a tax year.

It’s applied against your Class 1 secondary National Insurance payments, which are the ones an employer is expected to cover, not the employee’s share. You claim it through payroll software using an Employer Payment Summary (EPS). If accepted, the savings start from the next return and continue until the full allowance is used up or the year ends.

If your eligibility changes during the year and you stop being able to claim, then the allowance will stop from that point forward. You won’t need to pay anything back, but you can’t apply it once you're no longer eligible. This is another reason to keep a close watch on your payroll and business setup across the year.

Common reasons why businesses miss out

It’s easy to see how businesses overlook this. Sometimes they assume they’re too small or don’t realise that having one part-time employee could still qualify. Others might think their accountant is already claiming it when that isn't always the case unless it’s been specifically requested or planned.

Here’s where we often see things go wrong:

• The company only has one employee who happens to be the director

• Payroll was handed off to someone unfamiliar with the claim process

• No one reviewed payroll records when significant business changes happened

These kinds of oversights are preventable. Working with someone who watches out for these hiccups can help spot issues ahead of time and correct them before the allowance is lost. Even if you think you’ve missed the window to claim, there’s a process for requesting the allowance for past years, as long as the business was eligible at the time.

How to make sure you're claiming correctly

The actual process of making a claim is not tricky, but doing it properly matters. Most businesses will tick a box in their payroll software and submit the information using an EPS to HMRC. It takes effect shortly after, assuming everything checks out.

If your payroll software doesn’t have the right fields, Basic PAYE Tools from HMRC can be used instead. But this route usually takes more manual effort, and things can slip through the cracks.

Keeping business information up to date has more of an impact here than many people think. Staffing changes, updated director roles, or different payroll frequencies can all affect eligibility. Reviewing these details at least once a year helps avoid issues. Ideally, someone should be reviewing your setup as part of your year-end planning, long before April arrives.

What changes to watch after April

Each April, the tax year resets and brings in updates from HMRC. Employment allowance is no exception. For the 2025/26 tax year, the thresholds, rates, and caps have changed, making it more beneficial for qualifying businesses. The maximum allowance has increased, but so has the rate of employer National Insurance contributions, so the savings can help counterbalance some of that increase.

But these gains only apply if your business is still eligible. If you’ve brought on a new director, added multiple companies under the same ownership, or made other staffing changes, your eligibility might shift. This is why it’s better not to assume things are the same year after year.

The start of the new tax year is a good time to refresh your business records and run through a checklist with a professional. Doing this early means you’re not caught off guard, and you get the allowance from the very first payroll run.

Make the most of what’s available to your business

Employment allowance is one of those tax breaks that can quietly save your business money, but only if you know about it and claim it the right way. With year-end paperwork picking up and the January payroll on the horizon, now’s a smart time to look at your setup.

If you're not sure where you stand, or if you’ve made changes during the year, it's worth having someone experienced take a look. That way, you won’t miss out on something you could use, and you don’t have to worry about sorting it out later.

Having expert support makes these small but important jobs easier to manage. It means you spend less time chasing forms and tax rules and more time focused on running your business day to day.

Get Expert Guidance With Payroll in Kent

ABMV provides specialist payroll and business advisory services to companies in Kent, supporting everything from staff payments to HMRC compliance. As members of the Institute of Chartered Accountants in England and Wales, ABMV chartered accountants bring in-depth knowledge to both routine payroll and strategic reliefs like employment allowance. The team regularly helps employers maximise available allowances and avoid the common pitfalls that lead to missed savings.

Making sense of employment allowance might seem simple at first, but plenty of businesses struggle to claim it properly. The rules don’t always fit neatly, and changes to your setup can make all the difference in what you’re allowed to claim. Having a fresh pair of eyes from people who know the ins and outs makes everything easier. When you need experienced accountants in Kent to help keep you on track, ABMV is here to guide you. Give us a call and let’s make sure nothing gets missed.