The Employment Allowance offers eligible employers the opportunity to reduce their National Insurance Contributions (NICs) by up to £5,000 each tax year. If your total Class 1 NICs are less than this amount, you can claim an allowance that matches your exact liability.

To be eligible for the Employment Allowance, your total Class 1 NIC liability in the previous tax year must have been below £100,000. If you operate multiple PAYE schemes or have connected businesses, the combined NIC liabilities across all entities are considered to determine your eligibility. It's important to note that the Employment Allowance applies exclusively to employer Class 1 NICs and cannot be used against Class 1A or Class 1B NICs. Each employer can claim the allowance only once, regardless of how many PAYE schemes or connected companies they manage. Additionally, the allowance may be subject to de minimis state aid limits.

Employers must renew their Employment Allowance claim every tax year. However, some employers are excluded from claiming this allowance, including limited companies with a single director and no other employees, as well as employees who fall under the IR35 ‘off-payroll working rules’.