The Autumn Budget 2024 and the December 2024 Employer Bulletin states that for paydays on and after 6 April 2025:
- the National Insurance Contribution (NICs) secondary (employer) threshold reduces from £9,100 to £5,000 per annum; and
- the rate of secondary NICs on earnings above the secondary threshold increases from 13.8% to 15%.
All of this will be legislated by an act of Parliament, currently progressing as the National Insurance Contributions (Secondary Class 1 Contributions) Bill. It is this legislation that also makes changes to the employment allowance:
- The value increases from £5,000 to £10,500 per annum; and.
- The £100,000 eligibility threshold is removed.
Given the increase to employer costs as a result of the NICs increases, the incentive to claim the employment allowance is greater in 2025/26, especially as the removal of the £100,000 threshold opens this up to larger employers again.
Restrictions to Claiming
The employment allowance indicator (field 166) is the one to use when making the annual claim for the employment allowance via the employer payment summary (EPS). In previous years, to be eligible for the allowance, employers would have had to indicate their business sector and confirm that de minimis state aid had not exceeded the maximum allowable over the last three years, as follows:
| RTI Field | Description | Allowable de minimis state aid |
| 199 | Employer is in the agriculture sector | €20,000 |
| 200 | Employer is in the fisheries and aquaculture sector | €30,000 |
| 201 | Employer is in the road transport sector | €100,000 |
| 202 | Employer is in the industrial/other sector | €200,000 |
However, in its passage to Royal Assent, the National Insurance Contributions (Secondary Class 1 Contributions) Bill takes away any reference to receipt of EU state aid as an exception from claiming the allowance. This is the same legislation that removes the £100,000 NICs eligibility threshold, although it does not remove any other limitations such as connection and single-director companies. It is unfortunate that HMRC has not publicised the removal of the state aid restriction as widely as they have publicised the increase to the allowance value. In a display of disjointed thinking by civil servants, HMRC’s RTI specifications for 2025/26 have not removed the above RTI fields. Therefore, payroll software developer professionals will still have these in their products as they remain valid. However, whilst they remain valid together with the error messages that can occur when using them incorrectly, it is important that they are not used.
Communication is Key
Consider the annual communication you have with clients. The £100,000 state aid and business sector eligibility references do not exist and there is no need to ask for this information. However, there is still a need for clients to identify they are eligible in all other respects
Making a Claim for 2025/26
Eligibility remains a key factor, simplified in 2025/26 by the removal of some limitations. These limitations have, in my experience, resulted in confusion and have been a reason for not claiming the employment allowance at all. However, the increase from £5,000 to £10,500 and the fact it is open to more employers makes claiming worthwhile. Different software products will have different functionality, something HMRC recognises. In a communication to all developers dated 5 December 2024, HMRC advised that products should make the claims process simpler for employers by requesting the completion of only two fields on the EPS:
- the employment allowance Indicator (field 166); and
- ‘State aid rules do not apply to employer’ (field 203).
None of the above fields (199–202) should be used when making the claim for the employment allowance in 2025/26.
Practical Tip
Talk with your software provider. Payroll software and legislation are at odds in 2025/26 when claiming the employment allowance. Talk to your provider and find out how they will facilitate claiming without the need for indicating the business sector.