If you're eligible to claim Employment Allowance, notify HMRC that you're claiming it and track how much you've claimed. Sage 50 Payroll makes both of these tasks easy.

Submit an Employer Payment Summary (EPS)

Due to HMRC changes, the State Aid option in the EPS is no longer relevant from the 2025/2026 tax year. This change takes effect from 6 April 2025.

When you apply, select Not Applicable as per Step 5 below in all cases for the 2025/2026 tax year. 

 NOTE: If you need to claim for a prior tax year, follow the claiming employment allowance for a prior tax year article.  

1. Click Payroll, then Change Process Date.
2. Ensure your process date is within the 2025/2026 tax year, then click OK.
3. Click Company, then click Settings.
4. Select the Apply for EA button.
5. From the State Aid drop-down menu, select Not Applicable.
6. Select Submit then Continue.
7. Click Submit then Submit again.

What happens next

At this stage, HMRC receives an EPS with the Employment Allowance application.

• If your application is unsuccessful, you receive a notification in your IR Secure Mailbox within five working days
• If you don't hear back from HMRC, your application has been successful. You can then select the Eligible for Employment Allowance checkbox within Company, then Settings

Once you select this checkbox, your software can calculate your Employment Allowance.
 NOTE: If your business is eligible for Employment Allowance, select the Eligible for Employment Allowance checkbox after you send your application submission. 

If you select the checkbox after you process one or more tax months, you must re-run your P32 for each month of the tax year, starting from month one. Sage 50 Payroll then calculates the Employment Allowance due in each period, and records these values in Company then Settings in your software.

Once HMRC approves your application, they automatically calculate your Employment Allowance based on the values you've already submitted for each period. This means, once you follow the steps above and re-run your P32's, the values in Sage 50 Payroll and your HMRC account match.

Next, we look at where to find your Employment Allowance values.

Post your Employment Allowance into Sage 50 Accounts

If you use the Nominal Link option to post your salary journals to Sage 50 Accounts, the Employment Allowance value isn't included. To reconcile your accounts, you need to create a manual journal to reduce the total NI on your balance sheet nominal code. Use our post the employment allowance value in your accounts guide, to go through these steps.

Multiple PAYE schemes

If you're eligible for Employment Allowance and your business has multiple PAYE schemes, you can only claim for one of your PAYE schemes.

You need to claim for the PAYE scheme with the most allowance. To do this, pick a scheme where you think your employer's Class 1 NI liability will meet the annual Employment Allowance amount. This is currently £5000. Then advise HMRC which scheme you're claiming Employment Allowance for.

Employees not included in Employment Allowance

 If your software designates an employee’s status as ‘Deemed,’ it excludes them from your Employment allowance calculations under off-payroll working rules (IR35).

If you employ someone for personal, household or domestic work, use a specific PAYE scheme for this, without Employment Allowance enabled. 

To find out more about exclusions, visit Gov.uk.