UK charities and Employment Allowance

We are often asked, “As a charity, are we eligible for the Employment Allowance?”

The simple answer is yes. For UK charities managing tight budgets while fulfilling their missions, every financial relief opportunity matters. The Employment Allowance represents one such valuable opportunity that many charitable organisations either overlook or don’t fully understand.

This relief can significantly reduce employer National Insurance contributions (NICs), and is even more important now that the Employers’ NIC rate has increased to 15%.

What is the Employment Allowance?

The Employment Allowance is a government initiative designed to support businesses and organisations with their employment costs. It allows eligible employers to reduce their annual National Insurance liability by up to £10,500, in the current 2025/26 tax year.

For charities operating with limited resources, this represents a meaningful saving that can make a substantial difference.

What are the eligibility criteria?

As with all tax and NIC allowances, specific criteria must be met for a claim to be made. These are as follows;

1. The charity must be an employer that pays Class 1 National Insurance contributions on employee earnings
2. The charity’s employer NICs liabilities are less than £100,000.
3. The charity is not a public authority or doing more than 50% of its work in the public sector

Benefits for charities

For charitable organisations, the Employment Allowance offers several distinct advantages:

• Direct cost reduction – up to £10,500 saved annually can be redirected to frontline services
• Simplified payroll management – the allowance is applied automatically once claimed
• Support for growth – makes hiring additional staff more financially viable
• Enhanced financial sustainability – contributes to overall financial health and resilience

How charities can claim the allowance

Claiming the Employment Allowance is relatively straightforward:

1. Check eligibility – confirm your charity meets all criteria
2. Submit your claim – this is done through the payroll software. And is a simple click button process.
3. One-time process – once claimed, the allowance automatically carries forward to future years (though eligibility should be reviewed annually)
4. Documentation – maintain records supporting your eligibility for at least 3 years

Common mistakes charities make

When dealing with the Employment Allowance, charities often fall into several common traps. Many mistakenly believe they don’t qualify for the allowance when, in fact, they do meet the eligibility criteria. Others fail to conduct annual reviews, missing the opportunity to confirm their continued eligibility each tax year.

Charities also frequently overlook how their relationships with connected organisations might affect their eligibility status. Additionally, many organisations struggle with incomplete record-keeping, failing to maintain adequate documentation that proves their eligibility for the allowance.

The Employment Allowance represents a significant opportunity for UK charities to reduce their employment costs and redirect more resources toward their charitable objectives.

For charities that haven’t yet explored this option, now is the perfect time to assess eligibility and potentially begin benefiting from this important financial relief. More importantly, the allowance can be backdated, so check if you are eligible.