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Employment Allowance and Small Employers' Relief
Employment Allowance and Small Employers’ Relief: eligibility, 2025/26 rates and the 2026/27 recovery-rate change. SER does not reimburse Statutory Sick Pay.
Quick answers
What is the Employment Allowance for 2025/26?
Up to £10,500 off your annual employer Class 1 NI bill — raised from £5,000 in April 2025. The previous £100,000 NI bill cap was removed, so most employers now qualify. Claim by ticking the box on your Employer Payment Summary in payroll software.
Can a single-director company claim Employment Allowance?
A company cannot claim when its only employee liable for secondary Class 1 NI is a director. A second employee must satisfy the relevant threshold condition; adding a low-paid employee alone is not enough. Check HMRC’s Employment Allowance eligibility rules.
What is Small Employers' Relief?
For 2025/26: If your total employer plus employee NI in the previous tax year was £45,000 or less, you can recover 108.5% of statutory maternity, paternity, adoption, shared parental, parental bereavement and neonatal care pay. Larger employers recover only 92%. The recovery rate is 109% for 2026/27.
Employment Allowance — what it is
A reduction of up to £10,500 (raised from £5,000 in April 2025) against your employer Class 1 NI bill each tax year. It's claimed through payroll and applied as you go, so each pay period your employer NI is reduced until the £10,500 allowance is used up.
Key 2025/26 changes
- Allowance increased from £5,000 to £10,500
- The previous £100,000 secondary NI threshold restriction was removed — most employers now qualify regardless of the size of last year's NI bill
Eligibility
You can claim if:
- You're a business or charity paying Class 1 NI
- You're not the sole director with no other employees earning above the secondary threshold
- The work isn't more than 50% public-sector (charities are exempt from this rule)
- You're not a personal/domestic employer (with limited exceptions)
The single-director rule
If your company has only one director and no other employees paid above the secondary threshold (£5,000 a year for 2025/26), you cannot claim the Employment Allowance. A second employee must meet the relevant secondary-threshold condition; merely adding a low-paid employee is not enough. Check HMRC eligibility.
Connected companies
Connected companies share one Employment Allowance between them. Decide which company will claim before the start of the tax year.
How to claim
Tick the Employment Allowance box on your Employer Payment Summary (EPS) through your payroll software. The reduction starts from the next pay period. You can claim retrospectively for up to 4 prior tax years.
Small Employers' Relief (SER)
If your total employer + employee NI for the previous tax year was £45,000 or less, for 2025/26 you can recover 108.5% of statutory:
- Maternity Pay (SMP)
- Paternity Pay (SPP)
- Adoption Pay (SAP)
- Shared Parental Pay (ShPP)
- Parental Bereavement Pay (SPBP)
- Neonatal Care Pay (SNCP, from April 2025)
Larger employers recover only 92% of statutory parental pay.
Statutory Sick Pay
SSP is not recoverable under Small Employers’ Relief. The former general rebate and temporary coronavirus rebate are historical schemes.
How SER is claimed
Reduce the relevant payments to HMRC through your payroll software. The recovery is calculated automatically by most payroll packages when you set the SER flag.
Common mistakes
- Sole-director companies claiming Employment Allowance — penalties and interest apply
- Connected companies double-claiming
- Forgetting to set the SER flag, missing 16.5% of recoverable statutory pay
General guidance, not tax advice. Speak to a qualified accountant for advice tailored to your situation. Figures relate to the 2025/26 UK tax year. Source: HMRC, gov.uk.
For 2026/27 the SER recovery rate is 109%, following the compensation-rate increase to 9%. See HMRC’s April 2026 bulletin.
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