Guide
Employment Allowance 2026/27 — Who Can Claim and How Much
Written by EmployerCalculator Editorial · Reviewed against official UK sources · Last updated: June 2026
Employment Allowance offsets up to £10,500 of employer NI in 2026/27. This guide explains who qualifies, who is excluded, how to claim via RTI, and how much different-sized businesses can save.
What the Employment Allowance is
The Employment Allowance is a relief that reduces an eligible employer's annual Class 1 employer NI liability. From April 2026, the maximum allowance is £10,500 per tax year — an increase from £5,000 in 2024/25 and £10,500 carried forward from 2026/27. The allowance is available to businesses and charities that have at least one employee whose earnings are above the secondary NI threshold. It does not reduce employee NI, pension contributions or income tax — only the employer's own NI bill.
The relief works by accumulating through the tax year. Each time employer NI is due, the allowance is applied to reduce the liability until the £10,500 is exhausted. A small employer whose total annual employer NI bill is £7,000 will pay zero employer NI for the year. An employer with a £15,000 annual NI bill will pay the first £10,500 from the allowance and the remaining £4,500 from their own funds. The allowance cannot be carried forward — any unused portion at 5 April is lost.
Critically, to qualify the employer must have at least one employee who is not a sole director. Companies where the only person earning above the NI threshold is a director with no other employees are explicitly excluded. This is one of the most commonly misunderstood aspects of the allowance, and it catches a significant number of one-person limited companies each year.
Who qualifies and who does not
Most UK businesses with staff are eligible: limited companies, sole traders who employ people, partnerships with employees, and charities. The key criteria are that Class 1 employer NI is payable in respect of at least one employee, and that the employee is not the sole director of the company with no other employees above the threshold.
The sole director exclusion is the most important in practice. A limited company where the director is the only person on the payroll — even if they pay themselves a salary well above the secondary threshold — cannot claim. As soon as a second employee earns above the threshold, the company becomes eligible. This is why some owner-managed businesses choose to put a spouse or other family member on a minimal payroll: once a second person crosses the threshold, the allowance unlocks. Any such arrangement must reflect genuine employment.
Connected companies rules mean that if you control two or more companies or charities, they share a single Employment Allowance between them — they cannot each claim the full £10,500. The allowance is allocated by agreement between the connected entities or defaults to the entity with the largest NI bill. Domestic employers — individuals who employ nannies, cleaners or carers in a personal rather than business capacity — are also excluded. Public bodies funded wholly or mainly from public funds cannot claim either.
How to claim via RTI
Claiming is done through payroll software rather than a separate HMRC form. At the start of the tax year, you set an Employment Allowance indicator in your Employer Payment Summary (EPS) settings. Most payroll software — Xero, Sage, QuickBooks, FreeAgent, HMRC Basic PAYE Tools — includes this as a checkbox or toggle in your employer settings. When the EPS is submitted to HMRC, the declaration is transmitted automatically.
Once the indicator is set, the allowance is applied cumulatively against employer NI each pay period. You do not pay employer NI until the cumulative NI for the year exceeds £10,500. If you pay monthly, the first month's employer NI is offset first, then the second month's, and so on. Once the allowance is exhausted, NI is payable at the standard rate for the rest of the year.
You must re-declare eligibility each tax year — the claim does not roll over automatically. If you change payroll software mid-year, confirm that the Employment Allowance indicator is correctly set in the new system. A common error is the indicator not transferring during software migration, resulting in NI being overpaid for the remainder of the year. Overpaid NI can be reclaimed but requires an amended EPS submission and delays cashflow.
Practical examples at different payroll sizes
A two-person company where both employees earn £30,000 per year generates total employer NI of approximately £7,500 per year (2 × £3,750). Employment Allowance of £10,500 covers the entire bill — the employer pays zero employer NI for the year and saves £7,500 in cash. The unused £3,000 of allowance is lost at year-end.
A five-person firm where all employees earn £40,000 per year generates total employer NI of approximately £26,250 per year (5 × £5,250). Employment Allowance of £10,500 reduces the net NI payable to approximately £15,750 per year — a saving of £10,500 in cash, representing about 40% of the gross NI bill. The saving is worth roughly £875 per month to the business.
For a ten-person business with mixed salaries averaging £35,000, total employer NI is approximately £45,000 per year. Employment Allowance reduces this by £10,500, leaving net NI of approximately £34,500. The percentage saving is smaller at this scale but the absolute cash saving is the same £10,500 per year. For businesses at this size, the allowance has a meaningful impact on the first two months of NI payments in the tax year.
Use the calculator
Put the figures from this guide into practice with the live calculator tools below.
Frequently asked questions
How much does it cost to employ someone in the UK?
The true cost to employ someone in the UK is typically 15–20% above gross salary. At £30,000: employer NI £3,750 + pension £713 = approximately £34,463 per year. At £50,000: employer NI £6,750 + pension £1,313 = approximately £58,063 per year. Adding workplace overheads of £2,000–£5,000 can bring the total to 20–25% above the headline salary.
What is the employer NI rate for 2026/27?
For 2026/27, employer Class 1 National Insurance is charged at 15% on employee earnings above the secondary threshold of £5,000 per year (£96 per week, £416 per month). This rate increased from 13.8% in April 2025, when the threshold was simultaneously cut from £9,100 to £5,000. Both changes apply from 6 April 2025.
How much employer NI do I pay on a £35,000 salary?
At £35,000 salary, employer NI for 2026/27 is £4,500 per year — 15% on £30,000 of earnings above the £5,000 threshold. That is £375 per month. In 2024/25, the same salary produced £3,585 in employer NI. The April 2025 changes therefore add £915 per year on this salary alone.
What is Employment Allowance and who can claim it?
Employment Allowance lets eligible employers reduce their annual employer NI bill by up to £10,500 in 2026/27, increased from £5,000 in 2024/25. The previous £100,000 NI bill eligibility cap has been removed, so more businesses qualify. Companies where the only paid employee is also a director cannot claim. Apply through payroll software via the Employer Payment Summary indicator.
What is the total employer cost above salary?
Beyond salary, employer cost includes: employer NI (15% on earnings above £5,000), employer pension (minimum 3% of qualifying earnings between £6,240 and £50,270), and overheads such as equipment, software and workspace. For most UK salaries this adds 12–20% above headline pay. Use the inputs above to set your exact pension rate and overhead figure.
What changed for employers in April 2025?
Three changes took effect from 6 April 2025: the employer NI rate rose from 13.8% to 15%, the secondary threshold was cut from £9,100 to £5,000, and Employment Allowance increased from £5,000 to £10,500 with the eligibility cap removed. For a £30,000 salary, annual employer NI increased from approximately £2,884 to £3,750 — a rise of £866 per year.
How is employer NI different from employee NI?
Employer NI is a cost paid by the employer on top of gross salary — it does not reduce take-home pay. Employee NI is deducted from the employee's wages instead. For 2026/27, employees pay 8% on earnings between £12,570 and £50,270, then 2% above that. Employers pay 15% on all earnings above £5,000 with no upper cap. This calculator covers the employer side; for employee take-home pay see AfterTaxSalary.co.uk.
What are employer costs in the UK?
UK employer costs in 2026/27 are: gross salary, employer NI at 15% on earnings above £5,000, employer pension at minimum 3% of qualifying earnings (£6,240–£50,270), and any operational overheads such as equipment or software. For a £35,000 salary, statutory employer costs (NI + pension) add approximately £5,363/year before overheads.
How much do I cost my employer in the UK?
If you earn £35,000, you cost your employer roughly £40,363/year — your salary plus £4,500 employer NI and £863 minimum pension. At £50,000, the total is approximately £58,063. Your employer pays these on top of your salary; they are not deducted from your pay. Use this calculator to see the exact figure for your salary.
Is this a PAYE cost calculator for employers?
Yes. PAYE employer costs include employer NI — calculated at 15% above £5,000 for 2026/27 — plus the employer's auto-enrolment pension contribution. The full calculator models both alongside any overhead assumptions to give a total PAYE-basis employer spend per employee.
What is a cost to company (CTC) salary in the UK?
Cost to company (CTC) in the UK refers to the total annual cost of an employee to their employer — salary, employer NI, pension, and overheads combined. A £35,000 CTC salary typically means a gross salary of roughly £30,000–£32,000 once the employer's NI and pension obligations are included in the total. Use this calculator to work backwards from a CTC budget to a gross salary.
Tools
Tools worth considering
UK payroll and HR tools. Editorial summary only — not endorsements.
Xero Payroll
Cloud payroll bundled with Xero accounting. Handles RTI submissions, auto-enrolment and payslip generation. Commonly used by UK small businesses already on Xero for bookkeeping.
See Xero Payroll →
QuickBooks Payroll
Payroll add-on for QuickBooks. Used by UK small employers for PAYE, NI, pension and HMRC RTI. Integrates with QuickBooks accounting.
See QuickBooks Payroll →
Sage Payroll
Long-established UK payroll software with HMRC recognition. Works standalone (without Sage accounting) and is widely used in small businesses and accountancy practices.
See Sage Payroll →
Employment Hero
HR and payroll platform used by growing UK teams. Combines contracts, onboarding, leave management and payroll in one system. HMRC RTI integrated.
See Employment Hero →
Once you know the cost — what next?
Running payroll correctly after you have calculated employer cost is the next practical step. The tools below handle HMRC RTI submissions, auto-enrolment pension and payslip generation automatically.