Employment Allowance 2026/27: £10,500 off employer NI — who can claim and how

What the Employment Allowance is and how it works

The Employment Allowance is a relief that reduces an eligible employer's annual employer (secondary) Class 1 National Insurance liability by up to £10,500¹. It was doubled from £5,000 in April 2025 at the same time as the employer NI rate rose to 15% and the secondary threshold fell to £5,000⁴, and both the allowance and those rates continue unchanged for 2026/27. The old rule that barred employers with a prior-year NI bill of £100,000 or more was removed at the same time, so larger employers can now claim too.

The relief accumulates through the tax year rather than arriving as a refund. Each pay run, the employer NI you would otherwise owe is offset against the remaining allowance until the £10,500 is exhausted; from that point you pay employer NI at the full rate for the rest of the year. A business with a £7,000 annual employer NI bill therefore pays nothing; a business with a £15,000 bill pays £4,500. Any allowance you do not use by 5 April is lost — it cannot be carried forward.

It only touches the employer's own NI. It does not reduce the employee NI deducted from staff wages, does not change PAYE income tax, and does not offset Class 1A NI on benefits in kind or the Apprenticeship Levy. If your payroll software shows a nil employer NI figure after claiming, employee deductions on payslips should look exactly as they did before.

Who qualifies — and the single-director trap

Most UK employers qualify: limited companies, sole traders and partnerships with staff, and charities and community amateur sports clubs. The core test is that employer Class 1 NI is payable on at least one employee's earnings — in other words, someone is paid above the £5,000 secondary threshold².

The most common reason a claim is refused is the single-director rule. A limited company where the only person paid above the secondary threshold is a director cannot claim, however much that director earns². A company with two directors both paid above £5,000 can claim, and so can a company with one director plus one ordinary employee above the threshold. Taking on a second person at a genuine salary above £5,000 — a spouse doing real work, or a first hire — unlocks the allowance for the whole payroll, which is why the £5,000 threshold is often the deciding number for owner-managed companies.

Other exclusions: domestic employers (someone employing a nanny, gardener or carer personally rather than through a business); public bodies and any business doing more than 50% of its work in or for the public sector, unless it is a charity; and off-payroll (IR35) deemed employment payments, which never count towards eligibility². Connected companies and charities — two entities under common control — get one allowance between them, to be claimed by one of them, not £10,500 each. Businesses in sectors where de minimis state aid limits apply (for example agriculture, fisheries and road freight) must also check they have room under those limits before claiming.

Worked example: employer NI before and after the allowance

Employer NI is 15% of each employee's pay above £5,000⁴. The table shows three typical small payrolls, the gross employer NI they generate, and what is actually paid to HMRC once the £10,500 allowance is applied.

Payroll	Employer NI before allowance	Allowance used	Employer NI actually paid	Cash saved
Director on £12,570 + 1 employee on £25,000	£4,135.50	£4,135.50	£0	£4,135.50
2 employees on £30,000	£7,500	£7,500	£0	£7,500
4 employees on £35,000	£18,000	£10,500	£7,500	£10,500
10 employees averaging £35,000	£45,000	£10,500	£34,500	£10,500

Employer NI = (salary − £5,000) × 15% per employee. Director example: (£12,570 − £5,000) × 15% = £1,135.50 plus (£25,000 − £5,000) × 15% = £3,000. Unused allowance in the first two rows is lost at 5 April.

In cash-flow terms the allowance is front-loaded. The four-person firm owes £1,500 of employer NI a month; the allowance absorbs the first seven months entirely (7 × £1,500 = £10,500), so the business pays no employer NI from April to October and £1,500 a month from November. Budget for that step-up rather than assuming a flat monthly saving.

How to claim through payroll (EPS)

There is no separate application form. You claim by submitting an Employer Payment Summary (EPS) to HMRC with the Employment Allowance indicator set to 'Yes' — a checkbox or toggle in every mainstream payroll product, including HMRC's free Basic PAYE Tools³. You also confirm your business sector for the state aid question. Once submitted, the relief applies from the start of the tax year, and any employer NI already paid that year is offset against later liabilities.

The claim does not renew itself. Most software carries the setting forward, but you must confirm eligibility each new tax year, and if you move payroll provider mid-year check the indicator has survived the migration — a silent 'No' after a software change is the single most common cause of businesses overpaying employer NI for months. If you discover a missed claim, you can claim for the current year and backdate up to four previous tax years by sending an EPS for each year³.

If your circumstances change mid-year — you lose your only non-director employee, for example, or you become a connected company — you must tell HMRC by submitting an EPS with the indicator set to 'No' and repay any allowance you were not entitled to. Keep a note of the eligibility check you made alongside your payroll year-end records.

Common mistakes

Five errors account for most Employment Allowance problems we see in payroll reviews:

• Claiming as a single-director company. If nobody else on the payroll is paid above £5,000, the claim is invalid and HMRC will recover the NI with interest².
• Two connected companies each claiming £10,500. Companies under common control share one allowance².
• Assuming the allowance covers employee NI or the Apprenticeship Levy. It offsets employer Class 1 NI only¹.
• Forgetting to re-check eligibility after a payroll software switch, so the EPS indicator quietly resets to 'No'³.
• Treating the allowance as a flat monthly discount when budgeting. It runs out part-way through the year for any payroll with more than £10,500 of employer NI.