Limited companies cannot claim Employment Allowance if they have just one director and that director is the only employee liable for secondary Class 1 National Insurance. This means that companies with several employees, where the director is the only employee paid above the Secondary Threshold, are not eligible for the Employment Allowance.

This only applies to limited companies. If you’re self-employed, this does not apply to you.

If your company circumstances change and more than one employee or director earns above the Secondary Threshold, you’ll be eligible for Employment Allowance for the whole tax year.

This includes companies where:

• all employees are directors who earn above the Secondary Threshold
• the company employs husband and wife directors where both earn above the Secondary Threshold
• the company employs seasonal workers where one or more is an employee earning above the Secondary Threshold in a week
• you’re the only UK-based employee of an international company that meets the other eligibility criteria, and you earn above the Secondary Threshold in a week

The decisive factor is that the additional employees must be paid above the Secondary Threshold.

The secondary threshold for 2025/26 is:

• £96 per weekly pay period;
• £417 per monthly pay period; and
• £5,000 per year.

Directors must be paid above the annual Secondary Threshold or pro rata if the directorship began after the start of the tax year.

If your company has several employees paid above the Secondary Threshold, but your circumstances change during the tax year and the director becomes the only employee paid above the Secondary Threshold, you can still claim the Employment Allowance for the tax year.

You should stop it for the following tax year, unless there are further changes to your circumstances and a further employee is taken on and paid above the Secondary Threshold.

The employment allowance can reduce an employer’s liability to national insurance contributions (NIC) by up to £10,500 for 2025/26. 1.2 million employers claimed it in 2024/25.

The allowance is offset against the employer’s class 1 NIC liability each time they run the payroll. The allowance can only reduce the employer’s – not an employee’s – NIC liability.

All employers can claim the allowance, including businesses, charities and individuals employing a care or support worker, except for:

• a public authority other than a charity. An employer is a public authority if they do half or more of their work in the public sector (e.g., for councils).
• a company where:
  • all of the company’s employer’s class 1 NIC liabilities for that year relate to one employee only; and
  • that employee is a director of the company.

The employment allowance cannot be set against class 1 NIC liabilities relating to the following employees:

• someone whose earnings are within the off-payroll working rules; and
• someone employed for personal, household or domestic work (e.g., a nanny or gardener), unless they’re a carer or support worker.

Further, where:

• an employer operates more than one payroll, it can claim the allowance against one of the payrolls only; and
• a company is connected with another company or companies at the start of the tax year; only one of the companies can claim the employment allowance for that tax year.

For 2024/25, the amount of the allowance is increased from £5,000 to £10,500 and a restriction that prevented many larger employers from claiming the allowance has been removed.

The employer has four years from the end of the tax year to claim the employment allowance for that tax year.