Act now on employment allowance changes, bosses urged

Businesses are being urged to review their arrangements for claiming employer national insurance relief amid changes to Employment Allowance rules that began at the start of the last tax year.

Experts at Hampshire accountancy and business advisory firm HWB Chartered Accountants say many SMEs and other employers risk either incorrectly claiming the allowance or failing to claim it altogether, so potentially missing out on precious savings against rising costs.

In the past tax year, businesses across the UK have used the Employment Allowance to help offset their higher Employer National Insurance Contributions (NICs) through the PAYE system.

The 2025/26 allowance changes include the removal of the previous £100,000 eligibility threshold, which had prevented larger employers from claiming the relief if their Employer NIC liability exceeded that figure in the prior tax year.

At the same time, the maximum Employment Allowance available has more than doubled, increasing from £5,000 to £10,500 annually.

Chandler’s Ford-based HWB say the reforms could provide valuable financial support for employers facing increased taxation, higher wage costs and mounting compliance pressures - but only if they understand the updated rules and act promptly.

James Alesbury, HWB Director, said the pace of regulatory change means many employers risk falling behind.

“The landscape of tax and reliefs is shifting dramatically,” he said. “Businesses are facing not only a higher tax burden, but also significant compliance costs. Employers are spending more time dealing with administration, payroll obligations and regulatory requirements, which can leave less scope to focus on strategy and growth.

“In that environment, it is easy for important details to be unintentionally overlooked. Not claiming the Employment Allowance is one of the most common issues we are seeing. Many employers simply don’t realise the parameters around the allowance have changed for the 2025/26 tax year.

“Yet these changes could make a meaningful difference in helping to offset Employer NIC liabilities at a time when every pound matters. Neglecting the change is tantamount to incurring a hidden cost.”

James advised that some restrictions still apply to Employment Allowance. “Single-director companies where the director is the only employee liable for Employer NICs remain ineligible for the allowance,” he explained. “Connected companies are also restricted, with only one business within a group permitted to make a claim. And you have to remember that the allowance can only be used to offset Employer NIC liabilities. This means some smaller businesses may not receive the full £10,500 benefit if their total Employer NIC bill for the year falls below that level, as unused allowance cannot be carried forward.”

James urged employers to seek professional advice to ensure their payroll systems and relief claims are fully aligned with the latest tax rules.

“Now is the time for businesses to sit down with their advisers and check their arrangements against the latest changes,” he said. “Payroll and tax compliance are becoming increasingly complex, and the risks of getting things wrong are growing. Speaking with an expert can help employers avoid costly mistakes, ensure they remain compliant and identify reliefs they may now be entitled to claim.”

HWB’s warning comes as many SMEs continue to face sustained financial pressure from inflation, rising employment costs and ongoing economic uncertainty.

Chartered accountants HWB, based at Chandler’s Ford, near Southampton, provides business and tax advice.