Employment Allowance 2026/27: Who Qualifies and How to Claim

Updated 2026/27 · 5 min read · EmployerCalculator Editorial

What the Employment Allowance is and how it works

The Employment Allowance is a relief that reduces an eligible employer's annual Class 1 employer NI liability by up to £10,500 in 2026/27. The allowance was increased from £5,000 to £10,500 in April 2026, making it significantly more valuable for small employers. A small employer with a total employer NI bill of £8,000 in 2026/27 will pay zero employer NI for the year. An employer with a bill of £15,000 will pay £4,500 after the allowance is applied.

The allowance works by offsetting employer NI that would otherwise be due to HMRC. It is applied against cumulative employer NI through payroll reporting — typically through the Employer Payment Summary (EPS) — and is used up progressively through the tax year as employer NI accrues. Once the full £10,500 has been offset, employer NI is payable at the standard rate for the remainder of the year. The allowance cannot be carried forward to the next tax year.

The Employment Allowance applies only to employer (secondary) Class 1 NI — it does not reduce employee NI deductions, income tax, or pension contributions. It also cannot be used to offset NI on certain payments excluded from the allowance, such as employer NI on earnings of employees over State Pension age (Class 1A NI on benefits-in-kind) or NI arising on employment-related securities.

Who qualifies and who is excluded

Most UK employers with at least one employee or director whose earnings are above the secondary NI threshold can claim Employment Allowance. This includes limited companies, sole traders with employees, partnerships with employed staff, and charities. The removal of the previous £100,000 NI eligibility cap (which applied until 2026/27) means significantly more employers can now claim — including medium-sized businesses that were previously excluded.

There are important exclusions. Sole directors who are the only paid person in their company — where no other employee earns above the secondary NI threshold — cannot claim. This exclusion captures many one-person limited company directors who pay themselves a salary above the threshold but have no other employees. If a second employee is added who earns above the threshold, the company immediately becomes eligible. Domestic employers (nannies, housekeepers, gardeners employed personally rather than through a business) are also excluded.

Public bodies that are funded wholly or mainly by public funds cannot claim Employment Allowance. Companies where more than 50% of their work is done for a single public sector body (for example, a private contractor wholly reliant on a local authority contract) may also be excluded. If you are uncertain about eligibility in these borderline cases, check HMRC's Employment Allowance guidance before claiming — incorrect claims must be repaid with potential penalties.

How to claim and common mistakes

Claiming Employment Allowance is straightforward in most modern payroll software. You tick the Employment Allowance indicator in your payroll settings, which triggers automatic inclusion in your Employer Payment Summary (EPS) submissions to HMRC. You do not need to apply separately or notify HMRC by letter — the claim is made through payroll. You must re-confirm eligibility each tax year; the claim does not automatically roll over.

If you forget to claim at the start of the year, you can backdate the claim for the current tax year at any point during that year. You can also backdate claims for up to four prior tax years if you were eligible and did not claim. Backdated claims are processed through payroll and offset against current NI liabilities or via refund if NI has already been paid. The time limit is four tax years, so claims for 2022/23 must be made by 5 April 2027.

Common mistakes include: claiming when you are a sole director with no other employees (not eligible); using the allowance against Class 1A NI on benefits-in-kind (not applicable); and failing to re-declare eligibility at the start of each new tax year (claim lapses if not renewed). A second common error is not claiming at all — many small employers eligible for the full £10,500 benefit are unaware they qualify, particularly following the April 2026 increase from £5,000.

Stop doing this by hand — Sage Payroll works out employer NI, pension auto-enrolment, statutory sick and maternity pay and files RTI to HMRC automatically for UK employers. Try Sage Payroll →

Affiliate link — we may earn a commission if you sign up, at no extra cost to you.

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.