Employment allowance

Summary

How to claim Employment Allowance in Sage Payroll.

Description

What is Employment Allowance?

It's an employer benefit that reduces your employer's National Insurance liability. In the 2024/25 tax year it's up to £5,000.

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, whichever is sooner.

CAUTION: As you may not be eligable from one year to another, you must apply again at the start of each tax year.

2025/2026 tax year

Employment Allowance increases to £10,500 per year from 6 April 2025. To find out more about legislation for the new tax year, visit the payroll legislation for the 2025/2026 tax year article.

Resolution

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, unless you’re a charity
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 Changes to Employment Allowance.

▼How to claim

Submit your application for Employment Allowance when you start the new tax year.

To apply for Employment Allowance for the new tax year:

From the Summary tab, under HMRC Real Time Information (RTI) Scheme, select Submit Claim.

Enter the details of your employment allowance claim.
NOTE: You must choose an industry sector before submitting your claim. If you aren’t sure what sector applies to your business, contact HMRC.

Industry Sector

Agriculture

Fisheries and Aquaculture

Road Transport

Industrial

State Aid Rules Don’t Apply

Select the industry sector that applies to your business.

If none of the named sectors applies to you, select either:

Industrial - if the state aid rules apply to your business

State Aid Rules Don’t Apply - if your business doesn’t fall under state aid rules.

State Aid Claimed €

0.00

You don’t need to enter this value. HMRC will check this for you.

The value appears in Euros because the European Commission sets the thresholds.

Select Next.
Confirm the details you're submitting to HMRC then select Submit.

You can view the status of your claim from the Summary tab.

HMRC notify you within 5 working days if you don’t qualify for Employment Allowance.

The Employment Allowance Claim section may display the message:

"You’ve indicated that you aren’t eligible for Employment Allowance".

This message is now permanent. It doesn't stop you from claiming Employment Allowance.

▼If you have claimed Employment Allowance in a previous payroll program

You may have used a different payroll system partway through the tax year.

You need to enter any Employment Allowance values into Sage Payroll. This ensures you don't over-claim the allowance.

Read our article Entering your Employment Allowance values.

▼Changing your claim

From the Summary tab, under HMRC Real Time Information (RTI) Scheme, select Actions and Record Payment / EPS.
Change the Eligible for NI Employment Allowance drop-down menu to Yes or No as required.
The selected option will remain on each future EPS you submit. You can change this again if required.
Complete the rest of the EPS as normal.

The change submits to HMRC and the summary page in Accounting updates to show that you aren’t eligible.
Any allowance amount claimed earlier adds back onto your HMRC liability.

▼To claim employment allowance for previous tax years

You can’t use Payroll to reclaim previous tax year allowances.

For advice about this, contact HMRC. They can match unclaimed allowance against outstanding payments or offer you a refund.

▼Applying for employment allowance part way through the year

You’re still entitled to the full yearly amount. This will however, only deduct from the period you notify the HMRC.

This could mean that you haven’t claimed everything you’re entitled to by the end of the tax year. In this case, you use the remaining balance to offset any PAYE liability in month 12.

For more information, read the HMRC guidance on claiming employment allowance.

Employment allowance

Summary

Description

What is Employment Allowance?

2025/2026 tax year

Resolution

When am I not eligible?

Related Solutions

SUPPORT & TRAINING

PARTNERS

COMPANY

FAQs