Small employers' relief: What it means for your business, who qualifies, and how to claim it

Published Tuesday 20 January 2026

Table of contents

• What is Small Employers' Relief?
• Do I qualify for Small Employers' Relief?
• What statutory payments are covered by Small Employers' Relief?
• How much Small Employers' Relief can you claim?
• Small Employers' Relief rate changes for 2025–26
• Small Employers' Relief and Employment Allowance
• How do you claim Small Employers' Relief?
• Managing cash flow with Small Employers' Relief
• FAQs on Small Employers' Relief

Key takeaways

• Verify your eligibility for Small Employers' Relief by ensuring your business made Class 1 National Insurance contributions of £45,000 or less in the tax year before your employee's qualifying week to claim 103% of statutory parental payments.
• Automate your Small Employers' Relief claims through payroll software to calculate relief amounts and submit Employment Payment Summaries to HMRC monthly, rather than waiting until the new tax year for manual repayments.
• Recognise that Employment Allowance and Small Employers' Relief are separate schemes, with Employment Allowance not counting towards the £45,000 threshold for SER qualification.
• Apply for advance payments from HMRC up to four weeks before the first statutory payment is due if you cannot afford to make the payments upfront, ensuring your employee receives timely support while you await relief.

What is Small Employers' Relief?

Small Employers' Relief is a government scheme that lets small businesses claim back 103% of statutory payments made to employees. This means you get back everything you paid plus an extra 3% to cover administrative costs for statutory maternity, paternity, adoption, parental bereavement, and shared parental pay.

If you run a small business, this relief improves your cash flow by reducing the cost of statutory payments.

Businesses that don't qualify for SER can usually claim relief at a lower rate of 92%.

Do I qualify for Small Employers' Relief?

Yes, you qualify if your business made contributions of £45,000 or less in the tax year before your employee's qualifying week.

Qualifying weeks include:

• Maternity leave: The 15th week before the due date week
• Adoption leave: The week your employee was notified by an adoption agency that they had been matched with a child
• Overseas adoption: The date on the official notification for employees adopting a child from another country
• Parental bereavement: The week before the death of a child or stillbirth

You can find out more about Small Employers' Relief eligibility here.

What counts as a 'small employer'?

A small employer is any business that makes Class 1 National Insurance contributions of £45,000 or less in a full tax year, according to HMRC.

What statutory payments are covered by Small Employers' Relief?

Small Employers' Relief (SER) helps you reclaim costs for several types of statutory parental pay. This means you can support your employees during important life events without the full financial strain on your business.

The scheme covers:

• statutory maternity pay (SMP)
• statutory paternity pay (SPP)
• statutory adoption pay (SAP)
• statutory shared parental pay (ShPP)
• statutory parental bereavement pay (SPBP)

How much Small Employers' Relief can you claim?

Small employers (qualifying businesses): Claim 103% of statutory payments made (100% + 3% additional relief)

Larger employers (non-qualifying businesses): Claim 92% of statutory payments made

Small Employers' Relief rate changes for 2025–26

Tax regulations change from year to year, so stay up to date with any changes that affect your business. Staying informed also helps protect your business from fraud, as HMRC has reported over 4,800 Self Assessment scams in a single year. For the 2025-26 tax year, the government has announced an increase to the compensation rate for Small Employers' Relief.

Keeping an eye on these updates ensures you claim the correct amount and manage your payroll accurately. Your payroll software should automatically apply the new rates once they come into effect.

Small Employers' Relief and Employment Allowance

Employment Allowance and Small Employers' Relief are separate schemes. Employment Allowance doesn't count towards the £45,000 threshold for SER qualification.

Example 1 - Not eligible:

• Employment Allowance claimed: £5,000
• Class 1 National Insurance contributions: £47,000
• Result: Not eligible for SER (£47,000 exceeds £45,000 threshold)

Example 2 - Eligible:

• Employment Allowance claimed: £5,000
• Class 1 NI contributions: £42,000
• Result: Eligible for SER (£42,000 is below £45,000 threshold)

To learn more about Employment Allowance and what you could be entitled to, read our guide.

Additionally, as a small business, if you're working within the sciences or technologies you could also benefit from research and development (R&D) tax credits.

How do you claim Small Employers' Relief?

Claiming SER through payroll software automates the entire process, part of a wider trend towards digital tax administration. For example, HMRC data shows a 65% rise in payments via its app, demonstrating the shift to digital tools.

How it works:

• Software calculates your entitled relief amount
• The relief is included in your Employment Payment Summary (EPS)
• Your payroll software submits the claim to HMRC automatically

If you're registered for VAT, you might already have cloud-based software with payroll features that allows you to process employees' statutory maternity and paternity, along with claiming the relief.

Alternative claiming method: Write to HMRC for a manual repayment, but you must wait until the beginning of the new tax year to do this.

You can find out more about claiming SER without software on the HMRC website.

How to claim Small Employers' Relief through Xero

Xero automates your SER claims by calculating relief amounts and submitting your EPS to HMRC monthly.

Setup steps:

1. Access payroll settings: Select 'Payroll', then navigate to 'Payroll Settings'
2. Open HMRC tab: Click on the 'HMRC' tab
3. Enable SER: Where it says 'Are you eligible for Small Employers' Relief?' select 'Yes'
4. Save changes: Click 'Save' to activate automatic SER processing

Managing cash flow with Small Employers' Relief

Managing your SER claims alongside other financial processes helps maintain healthy cash flow and reduces administrative burden.

Xero Payroll handles Small Employers' Relief calculations automatically, giving you more time to focus on growing your business. Ready to streamline your payroll and claim processes? Try Xero for free and see how automated relief claiming can improve your cash flow.

For more strategies to optimize your business finances, explore our cash flow advice hub.

FAQs on Small Employers' Relief

Here are answers to a few common questions about Small Employers' Relief.

What happens if my National Insurance contributions are just over the £45,000 threshold?

The £45,000 threshold is a strict limit. If your Class 1 National Insurance contributions in the previous tax year were even slightly over this amount, you won't qualify for SER. However, you can still reclaim 92% of the statutory payments you make.

Can I get an advance payment from HMRC if I can't afford to make statutory payments?

Yes, if you're unable to afford the statutory payments, you can apply to HMRC for an advance payment. You can apply up to four weeks before the first payment is due. This helps ensure your employee is paid on time while you wait for the relief.

How is the additional 3% compensation paid?

The additional 3% is a form of tax credit. When you calculate your relief, you reclaim 100% of the statutory payment plus an extra 3%. This total amount is then deducted from the total PAYE taxes and National Insurance contributions you owe to HMRC for that month. It effectively reduces your overall tax bill.