What is the employment allowance for national insurance?

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Here is a comprehensive answer on the Employment Allowance for National Insurance:

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## What is the Employment Allowance for National Insurance?

### What the law says

The Employment Allowance was introduced by **section 1 of the National Insurance Contributions Act 2014 (NICA 2014)**, which allows eligible employers to claim a deduction from their **Class 1 secondary National Insurance contributions (NICs)**.

**Amount of the allowance:** The annual amount of the Employment Allowance is currently **£10,500**, following an amendment to section 1(2)(a) of NICA 2014 which substituted the previous figure of £5,000. This change came into force on **6 April 2025**.

**How it is claimed:** Under section 4 of NICA 2014, qualifying employers receive the allowance by making a **deduction from NIC payments** they would otherwise be liable to pay, reducing their secondary Class 1 NICs liability up to the annual maximum.

**Exceptions:** Section 2 of NICA 2014 sets out circumstances where an employer incurs a secondary Class 1 NICs liability but still cannot claim the allowance. Notably, the allowance **cannot** be claimed in consequence of **avoidance arrangements** — defined as arrangements where a main purpose is to secure that a person benefits from the employment allowance provisions. The £100,000 secondary Class 1 NICs liability threshold (which previously excluded larger employers) was **removed** from 6 April 2025.

The government retains the power under **section 5 of NICA 2014** to amend both the annual amount and qualifying conditions via statutory instrument subject to the affirmative procedure.

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### HMRC guidance / practice

**Who qualifies:** To claim, an employer must be a **secondary contributor** during the tax year and must have incurred a **secondary Class 1 NICs liability** during the year of claim.

**How it is applied:** The allowance is applied as a deduction each time the employer runs their payroll, reducing the secondary Class 1 NICs due to HMRC, until either the annual amount is fully used or the tax year ends.

**Per employer, not per employee:** The allowance is available to the employer as a whole — not per staff member — regardless of how many people are employed.

**Partial claims:** If an employer's total secondary Class 1 NICs liability for the year is **less than** the annual allowance, they receive a reduced amount equal to their actual liability.

**Unused allowance:** If the full allowance cannot be utilised against NICs in the tax year, the unused amount may be set off against other HMRC liabilities in the same tax year, or claimed as a refund directly from HMRC.

**Restrictions for service companies:** Personal service companies and managed service companies can only claim the allowance on payments of earnings that give rise to an employer Class 1 NICs liability. They **cannot** claim it against deemed payments of employment income (IR35 situations).

**Special conditions** also apply to connected companies/charities, employers with multiple PAYE schemes, and care or support workers.

**Record-keeping:** Employers claiming the allowance must maintain and retain records relating to their qualification for the allowance and the calculation of any amounts deducted or repaid.

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