UK Employment Allowance Guide
UK Employment Allowance explained: claim up to £10,500 off your Employer Class 1 NICs bill. Eligibility rules, single-director restrictions, and RTI EPS claims.
In one sentence
The UK Employment Allowance reduces eligible employers' Class 1 Secondary National Insurance Contributions (NICs) by up to £10,500 per tax year.
Quick answer
- Reduces Class 1 Secondary Employer National Insurance bill by up to £10,500 per tax year
- Former £100,000 prior-year Employer NIC eligibility threshold has been removed
- Single-director companies with no other employees paid above the Secondary Threshold are excluded
- Claimed directly through RTI payroll software via Employer Payment Summary (EPS)
- Employment Allowance was £10,500 for 2025/26 and 2026/27, and £5,000 a year from 2022/23 to 2024/25
UK Employment Allowance Explained
The Employment Allowance is a valuable UK tax relief that allows eligible employers to reduce their annual Employer Class 1 National Insurance Contributions (NICs) bill by up to £10,500 per tax year.
Instead of paying Employer NI on staff salaries from day one, qualifying businesses pay zero Employer National Insurance until their cumulative NIC liability exceeds the annual allowance limit.
For 2026/27 the Employment Allowance is £10,500. You need to claim it every tax year, and you can only use it against employers' Class 1 National Insurance.
How the £10,500 Employment Allowance works
When you run payroll for your employees or directors, your company incurs Employer Class 1 NICs (15% in 2026/27 on pay above the Secondary Threshold of £5,000 a year).
With Employment Allowance enabled:
- HMRC automatically deducts your monthly Employer NI liability against your £10,500 allowance balance.
- You pay zero Employer NI to HMRC until your cumulative payroll usage reaches £10,500 during the tax year (6 April to 5 April).
- Employee National Insurance and PAYE Income Tax deductions are not affected and must still be paid over to HMRC as normal.
Who is eligible to claim Employment Allowance?
Most UK businesses, limited companies, partnerships, charities, and community amateur sports clubs with employees qualify for the allowance.
Key Eligibility Criteria:
- Staff Payroll: You must employ workers or directors earning above the Employer National Insurance Secondary Threshold.
- No £100,000 limit from 2025/26: the £100,000 prior-year Employer NIC limit only applies to claims for 2024/25 or earlier. For 2025/26 onwards there is no limit, so larger employers can claim.
- Public sector and exclusions: public bodies, and businesses doing more than half their work in the public sector, cannot claim unless they are a charity. You cannot include someone whose earnings fall within the IR35 off-payroll working rules, or domestic staff such as a nanny or gardener unless they are a care or support worker.
- Charities and carers: charities (including community amateur sports clubs) and employers of a care or support worker can also claim.
The Single-Director Exclusion Rule explained
HMRC rules strictly prohibit single-director limited companies from claiming Employment Allowance if the sole employee paid above the Secondary Threshold is the company director.
However, your company becomes fully eligible if you:
- Employ a second director or employee who earns enough to incur Class 1 Employer NICs.
- Employ family members or a spouse on genuine commercial payroll terms paid above the Secondary Threshold.
Connected companies and group restrictions
If you operate multiple limited companies or a group structure:
- Only one company in a connected group or under common control can claim the £10,500 Employment Allowance per tax year.
- You can choose which connected company claims the allowance to maximize tax savings across the group.
- If you have more than one employer PAYE reference, you can only claim the allowance against one of the payrolls.
Employment Allowance by tax year
The amount has changed over the years you can still claim for.
- 2026/27: £10,500
- 2025/26: £10,500
- 2022/23 to 2024/25: £5,000 each year
You can claim for the previous 4 tax years. For 2024/25 or earlier, your employers' Class 1 National Insurance liability must have been under £100,000 in the previous tax year, and payments to off-payroll workers (deemed payments) are left out of that test. For 2025/26 onwards there is no limit.
Some businesses in Northern Ireland that make or sell goods or wholesale electricity must also check the de minimis state aid limits before claiming. Check GOV.UK if that is you.
Worked examples for 2026/27
Several employees. A company has four employees, each paid £30,000 a year. Employer National Insurance on each is 15% of (£30,000 - £5,000), which is £3,750, so £15,000 in total. The £10,500 Employment Allowance covers the first £10,500 and the company pays HMRC the remaining £4,500.
One director. A company pays its only director £12,570. Employer National Insurance would be 15% of (£12,570 - £5,000), which is £1,135.50, but the company cannot claim because the director is the only employee liable for it. If it then employs someone else paid £30,000, that adds £3,750, the total of £4,885.50 sits inside the £10,500 allowance, and the company pays no employer National Insurance.
The second employee must be liable for secondary Class 1 National Insurance. Someone whose pay is below the threshold, or who is not liable for another reason, does not make the company eligible. These examples are illustrations, not advice on a specific payroll.
How to claim Employment Allowance via payroll
Claiming the allowance is straightforward and managed directly through your RTI payroll software:
- Submit an Employer Payment Summary (EPS) to HMRC with the Employment Allowance indicator set to "Yes".
- You can claim at any point in the tax year, but the earlier you claim the sooner you benefit. If you claim late and have not used the allowance against employers' Class 1 National Insurance, you ask HMRC to use any unclaimed allowance at the end of the year to pay other tax or National Insurance you owe, or to refund it after the year end if you owe nothing. You cannot get a refund for the gap between your actual liability and the full £10,500.
- You can claim for up to 4 previous tax years if you did not claim.
HMRC does not send a confirmation letter, and a rejected claim gets an automated message within 5 working days. You can see how much you have used in your HMRC online account. If you stop being eligible, set the indicator to "No" in your next EPS. Do not do that just because you have reached £10,500 early or no longer employ anyone: neither makes you ineligible, and stopping a claim before 5 April removes any allowance already given for that year. Read the GOV.UK Employment Allowance guide.
Read our guide on understanding payroll numbers and HMRC PAYE references or see how our managed UK payroll service handles your Employment Allowance claims.
Want to claim your £10,500 Employment Allowance?
Book a 30-minute call with an experienced UK payroll accountant. We will review your director payroll structure, check connected-company rules, and set up your HMRC EPS claims.
Book a call →Frequently asked questions
What is the Employment Allowance?
Employment Allowance lets eligible employers reduce their employers' Class 1 National Insurance bill by up to £10,500 in a tax year. You pay less each time you run payroll until the £10,500 has gone or the tax year ends, whichever is sooner. It does not reduce PAYE Income Tax or employee National Insurance.
How much is the Employment Allowance in 2026/27?
£10,500 for 2026/27. It was also £10,500 for 2025/26, and £5,000 a year for each of the tax years from 2022/23 to 2024/25. You can only claim against your employers' Class 1 National Insurance liability, and you can still claim if that liability is less than £10,500.
Who is eligible for the Employment Allowance?
Businesses, charities (including community amateur sports clubs) and employers of a care or support worker can claim, as long as they do less than half their work in the public sector, unless they are a charity. If a company has only one director, that director must not be the only employee liable for secondary Class 1 National Insurance. Only one company in a connected group can claim, and you can only claim against one payroll if you have more than one PAYE reference.
Can a company with one director claim Employment Allowance?
Not if the director is the only employee liable for secondary Class 1 National Insurance. The company becomes eligible once it employs at least one other person who is liable for it, for example an employee paid above the secondary threshold of £5,000 a year in 2026/27.
Can I claim Employment Allowance for previous years?
Yes. You can claim for the previous 4 tax years. For 2024/25 or earlier, your employers' Class 1 National Insurance liability must have been under £100,000 the previous tax year. For 2025/26 onwards there is no such limit.
How do I claim Employment Allowance?
Put 'Yes' in the Employment Allowance indicator the next time you send an Employer Payment Summary (EPS) from your payroll software, or use HMRC's Basic PAYE Tools. You need to claim every tax year. HMRC does not send a confirmation letter, and a rejected claim gets an automated message within 5 working days.
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