YF AccountingLast updated: 4 September 2026
7 min read
The Employment Allowance lets eligible employers knock up to £10,500 off their employer National Insurance bill for 2026/27. Most businesses with at least two people on the payroll qualify. Companies where the only person paid above the £5,000 secondary threshold is the sole director do not. You claim it with a single tick box on an Employer Payment Summary, and if you were eligible in earlier years but never claimed, you can backdate a claim up to four tax years.
With the employer NI rate now at 15% and the secondary threshold down at £5,000 a year, the allowance is worth more than it has ever been, and plenty of employers we speak to still are not sure whether they qualify. Here is the plain-English version.
What is the Employment Allowance?
The Employment Allowance is a reduction against your employer’s secondary Class 1 National Insurance bill. It is not a cash payment from HMRC, and it cannot be set against your employees’ own contributions or against Class 1A on benefits in kind. Once claimed, you simply pay less employer NI each pay run until either the £10,500 is used up or the tax year ends, whichever comes first.
If you want a refresher on how employer NI fits into the wider payroll picture, our payroll and PAYE guide covers the mechanics from the ground up.
How much is the Employment Allowance worth in 2026/27?
The numbers you need for 2026/27 are these:
| 2026/27 figure | Amount |
|---|---|
| Employment Allowance | £10,500 per business per tax year |
| Employer Class 1 NI rate | 15% |
| Secondary threshold (where employer NI starts) | £5,000 a year (roughly £96 a week) |
| Backdating window | Up to 4 previous tax years |
A worked example shows why it matters. Suppose you have three employees each earning £30,000. Employer NI is 15% of each salary above £5,000, so (£30,000 – £5,000) × 15% = £3,750 per employee, or £11,250 for the year. After the Employment Allowance you pay just £750 of employer NI for the whole year. Without claiming, you hand HMRC the full £11,250.
Who can claim the Employment Allowance?
You can claim if you are a business or a charity (including community amateur sports clubs) and you do less than half of your work in the public sector. Employers of care or support workers also qualify.
One change from April 2025 still catches people out in a good way: the old £100,000 cap on the previous year’s employer NI bill has been abolished. That cap used to lock out medium-sized employers entirely. It is gone, and larger employers can now claim too, provided the other eligibility rules are met. If you stopped claiming years ago because your NI bill grew past £100,000, it is time to start again.
Why can’t sole-director companies claim, and is there a workaround?
The exclusion that catches the most people: a limited company cannot claim if the only employee paid above the £5,000 secondary threshold is also a director. This rules out the classic one-person company where the sole director takes a small salary and dividends.
The workaround is legitimate and well established, but it has to be done properly. The company becomes eligible if a second person is paid above the secondary threshold at some point in the tax year. In practice that usually means one of two routes:
- A second genuine employee, often a spouse or partner, doing real work for the business, with real duties, paid through PAYE at more than £5,000 a year. The salary must be justifiable for the work actually done, both for the Employment Allowance and for the company’s corporation tax deduction.
- A second director paid above the threshold. If two directors are each paid above £5,000, the company qualifies even with no other staff.
Run the numbers and the workaround usually pays for itself several times over. Put a spouse on a £12,570 salary and the employer NI on that salary is (£12,570 – £5,000) × 15% = £1,135.50, but the allowance wipes it out, along with the employer NI on the director’s own salary, and the salary itself is deductible against corporation tax. What does not work is a sham: a spouse on the payroll who does nothing for the business invites HMRC to unwind both the allowance and the deduction. We look at exactly this trade-off in our guide to salary vs dividends for 2026/27.
Two other exclusions to know: workers caught by the IR35 off-payroll rules do not count towards eligibility and their deemed earnings generate no allowance, and domestic staff such as nannies or gardeners are excluded unless they provide personal care or support.
How do I claim the Employment Allowance?
The mechanics are refreshingly simple. You tick the Employment Allowance box on an Employer Payment Summary (EPS) in your payroll software and submit it to HMRC through RTI. That is the whole claim.
You can claim at any point in the tax year. Claim at the start and the reduction flows through each pay run automatically. Claim later and you can set the allowance against employer NI still to be paid for the rest of the year, or ask for a refund of amounts already paid.
Three things worth double-checking:
- There is no automatic renewal. A claim for 2025/26 does not roll into 2026/27. The box needs ticking each tax year.
- One claim per employer. If you run more than one PAYE scheme, you can only claim against one of them, so pick the scheme with the largest employer NI bill.
- Software switches lose claims. If you changed payroll software mid-year, confirm the old software actually filed the claim. We see this slip through every spring in our payroll work.
Can I backdate an Employment Allowance claim?
Yes, up to four previous tax years. If you were eligible but never ticked the box, you can still claim for:
| Tax year | Allowance available |
|---|---|
| 2022/23 | £5,000 |
| 2023/24 | £5,000 |
| 2024/25 | £5,000 |
| 2025/26 | £10,500 |
That is up to £25,500 of employer NI potentially recoverable before this year’s £10,500 is even counted. For a small employer who simply never knew the allowance existed, a backdating exercise is often the single most valuable half-hour of payroll admin available. Add the claim dates to your diary alongside the rest of the year’s obligations. Our 2026/27 tax dates calendar has the full list.
What about connected companies?
If your business is part of a group of connected companies (broadly, companies under common control or with substantial interdependence), only one company in the group can claim, however many PAYE schemes the group runs. You choose which one, so choose the company with the biggest employer NI bill.
HMRC takes connection seriously. Two connected companies that each claim £10,500 will eventually surface in a compliance check, and the clawback comes with interest. If you own more than one company, decide deliberately rather than letting each payroll tick its own box.
Frequently asked questions
Can a sole director company claim the Employment Allowance?
Not if the director is the only employee paid above the £5,000 secondary threshold. The company becomes eligible if a second person, a genuine employee or a second director, is paid above that threshold at some point in the tax year. The second role has to be real, with real work and real pay through PAYE.
Does the Employment Allowance renew automatically each year?
No. You need to claim afresh each tax year by ticking the Employment Allowance box on an Employer Payment Summary. Some payroll software carries the setting forward, but do not assume it has. Check the EPS actually went to HMRC with the claim indicator set for 2026/27.
How far back can I claim the Employment Allowance?
Four previous tax years, so claims for 2022/23 onwards are still open. The allowance was £5,000 for 2022/23 through 2024/25 and £10,500 for 2025/26, meaning up to £25,500 of employer NI could be recoverable if you were eligible throughout and never claimed.
Does the Employment Allowance cover Class 1A National Insurance?
No. It only reduces employer (secondary) Class 1 NI on salaries. Class 1A NI on benefits in kind and Class 1B on PAYE settlement agreements are outside the allowance, as are your employees’ own NI contributions and any Apprenticeship Levy.
Can charities claim the Employment Allowance?
Yes. Charities and community amateur sports clubs can claim on the same terms as businesses, including where more than half their income comes from public funds, as long as they are not doing more than half of their work in the public sector in a functional sense. Employers of care and support workers also qualify.
Is the Employment Allowance worth it for a two-person company?
Almost always. With employer NI at 15% above just £5,000 of salary, even two modest salaries generate an employer NI bill of a few thousand pounds a year, and the allowance can wipe out up to £10,500 of it. For most small companies it is the highest-value tick box in the entire payroll system.
Need a hand with your payroll?
If you are not sure whether your structure qualifies, especially if you are a single-director company weighing up adding a spouse or second director to the payroll, it is worth a short conversation before the tax year gets much older. We run fixed-fee payroll and accounting with no hourly billing: sole traders from £35 a month, limited companies from £50 a month, and you can see everything on our pricing page.
Book a free, no-obligation call or ring us on 0161 531 0959 and we will check your eligibility, sort the claim, and look at whether a backdated claim is owed to you.
This article is general information, not personal tax advice. For advice on your own situation, please get in touch.
For the employee side of the same payslip, see how PAYE tax is calculated in 2026/27.
Founder of YF Accounting, a fixed-fee, fully digital accountancy practice in Manchester serving SMEs, sole traders and landlords across the UK. One point of contact, unlimited support, no surprise bills.
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