Can Connected Companies Claim Employment Allowance? What UK Business Owners Need to Know
20th Aug 2025
Table of contents
- Introduction
- What is Employment Allowance?
- What does HMRC mean by “connected companies”?
- Can multiple companies under the same owner claim Employment Allowance?
- How do I choose which company should claim?
- What happens if more than one company claims?
- What records should I keep?
- Contact us to expert advice
The quick answer is no, only one connected company can claim Employment Allowance per tax year. In this blog we explain in simple terms what business owners need to know about connected companies and claiming employment allowance.
We often hear, ‘But they’re separate businesses. Surely, we can claim for both?’ This is a common cause of confusion. Many business owners assume that if their companies have separate PAYE schemes, they can each claim the allowance. However, HMRC sees things differently and misunderstanding the rules could mean missing out on up to £10,500 (An increase from £5,000 last year) in NICs relief or facing penalties.
What is Employment Allowance?
The Employment Allowance lets eligible employers reduce their annual Class 1 National Insurance Contributions by up to £10,500. However, if your companies are connected, only one can claim it per tax year.
This rule often catches out:
- Family-run businesses with multiple entities
- Groups with shared directors or shareholders
- Companies with separate PAYE schemes but shared control
Don’t worry you are not alone in facing this. Many business owners are unaware of HMRC’s definition of “connected companies” or how broad it is.
What does HMRC mean by “connected companies”?
HMRC considers companies connected if:
- One controls another
- Both are controlled by the same person or group
- They share finances, premises, staff, or management (known as substantial commercial interdependence)
Control can be through:
- Shareholding
- Voting rights
- Income rights
- Influence over decisions
Even if companies are only connected through family relationships, they may still be considered connected if they operate in a commercially interdependent way.
Can multiple companies under the same owner claim Employment Allowance?
No. If companies are connected, only one can claim the allowance each year.
How do I choose which company should claim?
Choose the one with:
- The highest NICs liability
- The most strategic benefit (e.g. hiring plans)
- A compliant payroll system
Once chosen, the claim must be made via your PAYE payroll software and cannot be changed mid-year.
What happens if more than one company claims?
HMRC may:
- Reclaim the allowance
- Issue penalties
- Request supporting documentation
What records should I keep?
Maintain evidence of:
- How companies are connected
- Why the chosen company was selected
- Confirmation that other companies did not claim
Contact us to expert advice
At Wright Vigar, we combine a personal approach with leading expertise to help businesses navigate complex tax rules with confidence.
Whether you run a group of companies, a family business, or are planning to expand, our team can help you:
- Assess your company structure
- Allocate the Employment Allowance strategically
- Stay compliant with HMRC’s latest guidance
Speak to our team today to ensure your Employment Allowance claim is correct and working in your favour.
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