The Employment Allowance, ten thousand five hundred pounds a year the company keeps

Our view is that the Employment Allowance is the first thing to check on any company payroll, before the salary and dividend conversation and before anything cleverer, because it is £10,500 a year that the company simply keeps, it costs nothing to claim, and it can be claimed for four years back. It is also the relief most often lost to a box that nobody ticked.

What is the Employment Allowance worth to my company

Up to £10,500 a year off the Class 1 National Insurance the company pays on its staff. It is not a grant and it touches nothing the employees pay. It sits against the fifteen percent owed on pay above £5,000 a year per person and cuts each month’s PAYE bill until it is used up or the year ends.

The allowance doubled to £10,500 on 6 April 2025, the day the employer rate rose to fifteen percent and the threshold fell to £5,000, and the Budget of 28 October 2026 kept it there for 2027 to 2028. The rule that shut out employers with a National Insurance bill above £100,000 went the same day.

Can my company go back for the years it never claimed

Yes, for four years, each on its own Employer Payment Summary with that year selected. HMRC sets the amount against anything owed on the PAYE account first and repays the rest. The catch is the cap. A back claim is worth the National Insurance actually paid in that year, up to the allowance, so a company that paid £3,200 in 2023 to 2024 gets £3,200 back, not £5,000.

The worked example on the sheet

Take a company with one director on £12,570 and two employees on £30,000 each, paying the nineteen percent small profits rate of Corporation Tax.

The company pays no employer’s National Insurance this year, and £1,864.50 of the allowance goes unused, which is not refunded. The real gain is a little smaller than the headline, because the National Insurance no longer paid was a deductible cost, so taxable profit rises by £8,636 and Corporation Tax by £1,641. The cash that stays in the business is £6,995, still the best return on a tick box in UK payroll.

Does my company qualify if I am the only director

Not on its own, and this is where the confusion sits. A company cannot claim for a year in which all the employer’s National Insurance it pays arises on one person who is a director. The rule is about who is paid above £5,000, not how many people are on the payroll. A director on £12,570 with three part timers under £5,000 does not qualify. A director on £12,570 and one employee on £6,000 does.

HMRC’s manual goes further than most owners expect. Where a second employee or director is paid above the threshold at any point in the year, the company qualifies for the whole year and sets the full £10,500 against the National Insurance on the director’s pay as well. If that employee leaves before the allowance is used up, the claim runs to the end of the year. From the next April the company needs somebody other than the director above the threshold again.

Two directors both paid above £5,000 qualify, and the manual names a husband and wife who are both directors as its example. The pay has to be real pay for real work through the payroll, because HMRC sees every line of it.

The four dates that decide whether you get it

The claim is annual and does not roll over. Every 6 April the indicator on the first Employer Payment Summary is set to yes again, and a company that changes payroll software or simply forgets pays fifteen percent on everything until somebody notices. A claim made in February is not lost, because HMRC sets the allowance against the National Insurance already paid since April, but by then the cash has been out of the business for ten months.

What people get wrong or forget to claim

The box that was never ticked again. The most common loss we see is a company that claimed once and assumed it was permanent. It is not, and only four lost years can be recovered.

The sole director who claimed anyway. Payroll software asks a yes or no question and the single director rule is easy to answer wrongly. A claim the company was not entitled to is withdrawn and the National Insurance repaid.

Connected companies. Two companies under the same control get one allowance between them, nominated to a single PAYE scheme at the start of the year, and unused allowance cannot move to the other company.

The refund that is not there. The allowance covers what the company owes, so a business with a £4,000 liability gets £4,000, never the difference up to £10,500.

What we would do in your position

Check the last four years of Employer Payment Summaries before anything else on the payroll, and file a claim for every year that qualifies, 2022 to 2023 first because it expires on 5 April 2027. Put the 6 April renewal in the payroll calendar as a step somebody signs off, never a default. In a single director company, the year a second person is paid above £5,000 for real work is a year the whole allowance is claimed, and the first year nobody else is above the threshold is the year the indicator goes back to no.

Stated as a rule, because we apply it on every payroll we run.

How we help

For the companies whose payroll we run, the Employment Allowance is claimed on the first submission of every tax year, every back year that qualifies is filed, and the single director and connected company rules are checked whenever someone joins or leaves. If you would like us to check the last four years of your payroll for an allowance that was never claimed, book a free thirty minute call.

This article is general information, not personal advice, and tax rules change over time. For guidance on your own circumstances, get in touch.

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