Employment allowance

An overview of employment allowance criteria and eligibility in Sage Payroll.

What is Employment Allowance?

It's an employer benefit that reduces your employer's National Insurance liability.

For the 2025/2026 tax year, the employment allowance increases to £10,500 per year.

Each time you run your payroll you pay less employers’ Class 1 National Insurance. This continues until you've used the full allowance for the tax year or until the tax year ends.

 CAUTION: Eligibility changes from one year to another, so you must apply again at the start of each tax year.  

When am I not eligible?

Over 99% of micro-businesses and 93% of small businesses can claim the allowance. 

 Regardless of the size of your company, you can’t claim the employment allowance if:

• You’re the director and the only employee that’s paid above the secondary threshold
• You employ someone for personal, household or domestic work. Unless they’re a care or support worker
• You’re a public body or business doing more than half of your work in the public sector. Excluding charities
• You’re a service company working. You're under IR35 rules, and your only income is the earnings of the intermediary

For more information about employment allowance, read the HMRC article gov.uk.

See our help guide on how to claim employment allowance.