Small Employers' Relief:

HMRC has announced a significant increase to the Small Employers’ Relief compensation rate for the 2025-26 tax year. This is great news for small businesses managing statutory payments. Let’s break down what this means for you.

What’s Changing?

The headline change is that the compensation rate for Small Employers’ Relief is increasing to 8.5% for the 2025-26 tax year. This means eligible employers can now claim:

• 100% of statutory payments, plus
• An additional 8.5% compensation (up from the previous 3%)

Who Qualifies for Small Employers’ Relief?

You qualify if your business:

• Paid less than £45,000 in Class 1 National Insurance in the previous tax year
• This threshold remains unchanged for 2025-26
• The £45,000 is calculated before any reductions (such as Employment Allowance)

Which Payments Does This Apply To?

The enhanced recovery rate applies to all statutory parental payments:

• Statutory Maternity Pay (SMP)
• Statutory Paternity Pay (SPP)
• Statutory Adoption Pay (SAP)
• Shared Parental Pay (ShPP)
• Statutory Parental Bereavement Pay (SPBP)
• Statutory Neonatal Care Pay

Let’s See How This Works in Practice

Here’s a practical example to show the difference:

Example: £1,000 in Statutory Maternity Pay

Current Recovery Rate (2024-25):

• 100% of payment: £1,000
• Plus 3% compensation: £30
• Total recoverable: £1,030

New Recovery Rate (2025-26):

• 100% of payment: £1,000
• Plus 8.5% compensation: £85
• Total recoverable: £1,085

That’s an additional £55 in compensation for this example alone!

Why This Matters for Your Business

This increased compensation rate offers several benefits:

1. Better cash flow management
2. Reduced financial burden of statutory payments
3. Additional support for small businesses
4. Makes it easier to support employees taking statutory leave

How to Claim

If you’re using PayCircle, claiming is straightforward:

1. We’ll automatically check your eligibility based on your NICs liability
2. The system calculates the correct recovery amount
3. This is included in your monthly Employer Payment Summary (EPS)
4. The recovered amount reduces your monthly PAYE/NICs payment to HMRC

Important Points to Remember

• The £45,000 NICs threshold is calculated before any deductions
• You need to check eligibility for each tax year
• The compensation rate applies to all statutory payments made during the tax year
• Recovery is handled through your regular payroll process

Key Dates

• The new 8.5% compensation rate starts from 6 April 2025
• It applies to all qualifying statutory payments made from this date
• The rate applies for the entire 2025-26 tax year

Need Help?

Understanding these changes and ensuring you’re claiming correctly is crucial. As your payroll provider, we can:

• Check your eligibility
• Ensure you’re claiming the correct amounts
• Handle all calculations and submissions
• Keep you updated on any future changes

Contact our expert team if you need any clarification or support with Small Employers’ Relief or any other payroll matters.

Note: This information is correct as of February 2025. Always consult with a payroll professional for advice specific to your circumstances.