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Are you entitled to claim Employment Allowance?

From 6 April 2025, employers entitled to claim the Employment Allowance will benefit from an increased credit of up to £10,500 against their employer’s National Insurance Contribution (NIC) bill (up from £5,000). In addition, the restriction that previously prevented employers with a Class 1 NIC bill of £100,000 or more in the previous tax year from claiming has been removed. This change will allow more employers to benefit from the increased allowance, helping soften the impact of the NIC rate and threshold changes, as covered in March’s Employer Focus.

However, the restriction allowing only one connected company to claim remains unchanged. Employers should review their eligibility — particularly around connected company rules and exclusions — to ensure they can claim.

When are companies connected?

In simple terms, two companies are treated as connected if either:

  • one has control of the other, or
  • both are under the control of the same person or persons.

HMRC provide more detailed guidance on how to assess whether control exists and determine if companies are connected. Employers must regularly review their connected companies and apply these rules carefully, as failing to identify connected companies could result in incorrect claims for Employment Allowance.

What happens if a company ceases to be connected?

If two or more companies are connected at the start of the tax year, they will be treated as connected for the entire year, even if their circumstances change. For Employment Allowance purposes, this means the companies need to agree which of them will claim the NIC credit, as only one can benefit from it.

What happens if a company becomes connected?

If, after the 6 April a company acquires or creates a new subsidiary, they will not be treated as connected companies for the rest of that tax year. From the following tax year, the connected persons rule will apply, meaning only one company can claim the allowance. It is up to the companies to decide which one of them will claim.

When else is the Employment Allowance not available?

Examples of where the Employment Allowance may not be claimed by an employer include situations where:

  • the company’s only employee is the sole director, or only one employee is paid above the Class 1 NIC secondary threshold, and that employee is also a director of the company.
  • its employees consist solely of domestic staff, such as a nanny, chauffeur or gardener.
  • it carries out functions either wholly or mainly of a public nature.
  • a contractor’s engagement is caught by the IR35 ‘off-payroll working rules’, the Employment Allowance cannot be claimed against the deemed payments of employment income.

  • it is already being claimed by a Limited Liability Partnership (LLP).

     

This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.  

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