Skip to main content What is the Employment Allowance?
Definition of the Employment Allowance
The Employment Allowance is a reduction of up to £5,000 a year in employer's National Insurance (NI) for certain employers.
The Employment Allowance started on 6th April 2014. It is set against the employer's NI that would have been paid, up to £5,000 a year. Only businesses with an employer’s NI liability of under £100,000 a year are eligible to claim the allowance.
The Employment Allowance can't be used against PAYE or employee's NI unless an employer has overpaid employer’s NI as a result of not using the allowance.
Limited companies that only pay employer's National Insurance on one employee's wages do not qualify for the Employment Allowance if that employee is also a director of the company. Certain other employers are not eligible, such as those employing domestic workers and those whose staff carry out more than 50% of their work in the public sector (with certain exceptions).
In the 2024 Autumn Budget the government announced that the allowance will increase from £5,000 a year to £10,500 a year from April 2025. The £100,000 eligibility threshold will be removed at the same time.
Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.