If you operate more than one limited company, you need to be careful with the Employment Allowance.
HMRC regularly recovers claims where employers didn’t realise their companies were connected. These errors are costly, avoidable, and rarely spotted until after the allowance has already been used.
The Employment Allowance in brief
Employment Allowance allows eligible employers to reduce their employer’s Class 1 National Insurance liability.
From 6 April 2025, it is:
- Worth up to £10,500 per tax year
- Available to more employers following the removal of the £100,000 NIC cap
- Still limited to one claim for connected companies
That last point has not changed – and it’s where most mistakes are made.
HMRC’s full guidance is here:
Connected companies and Employment Allowance – GOV.UK
Connected companies: HMRC’s view
For Employment Allowance purposes, companies are connected if either:
- One company controls another, or
- The same person (or people) controls more than one company
Control is not just about shareholding.
HMRC will consider:
- Majority voting rights or share capital
- Rights to income or assets
- Control through associates (including spouses and close family)
- Whether the companies are financially, economically, or organisationally linked
If the same individual or family effectively runs multiple companies, HMRC is likely to regard them as connected.
The rule that determines everything: 6 April
HMRC looks at one date only.
If two or more companies are connected at the start of the tax year (6 April):
- They are treated as connected for the entire tax year
- Only one company may claim the Employment Allowance
- The allowance cannot be split
It does not matter if:
- The companies separate later in the year
- Ownership changes after 6 April
The position at the start of the tax year is decisive.
Choosing which company claims
HMRC does not decide which company gets the allowance.
Where companies are connected:
- The businesses must agree between themselves which company will claim
- Only one PAYE scheme can apply the allowance
- Any unused allowance is lost – it cannot be transferred to another company
Choosing the wrong company can result in part of the £10,500 being wasted.
Companies becoming connected later
This often works in the employer’s favour.
If companies:
- Are not connected on 6 April
- Become connected later in the tax year
Each company may still keep its Employment Allowance claim for that year.
The restriction applies from the next tax year onward.
Why HMRC challenges these claims
Incorrect Employment Allowance claims are a common PAYE compliance issue.
HMRC may:
- Recover the allowance in full
- Charge interest
- Apply penalties in some cases
Most errors arise from misunderstanding the connected companies rules, not deliberate misuse – but HMRC treats the outcome the same.
What you should be doing now
If you:
- Own or control more than one limited company
- Have family members involved across businesses
- Operate multiple PAYE schemes
You should review connected company status every tax year before claiming Employment Allowance.
This avoids:
- HMRC corrections
- Unexpected repayments
- Unnecessary disruption later
The bottom line
Multiple companies do not mean multiple Employment Allowances.
The allowance is valuable – but only if claimed correctly.
Getting it wrong is expensive, and HMRC will not view it as a minor technical issue.