Employment Allowance is £10,500 in 2026/27. It reduces eligible employers’ secondary Class 1 NI bill by up to that amount each tax year. The £100,000 NI liability cap that previously restricted eligibility has been removed, so all eligible employers can now claim. Single-director companies where the director is the only employee remain excluded. The claim is made by ticking a box on your Employer Payment Summary, and you can backdate up to four prior tax years.

This guide explains what Employment Allowance is, who can and cannot claim, how to claim, and the most common mistakes employers make.

Quick answers

  • What Employment Allowance is: Employment Allowance was introduced in 2014 to reduce the cost of employing staff.
  • Who can claim in 2026/27: Eligible employers are eligible to claim if they pay secondary Class 1 National Insurance Contributions on employees’ earnings.
  • How Employment Allowance is applied to national insurance contributions: Once claimed, HMRC offsets the allowance against your annual National Insurance liability as it builds over the year in the order it accrues.
  • Common mistakes: Five mistakes account for most Employment Allowance failures:
  • Key takeaways: Employment Allowance for 2026/27 is £10,500

What Employment Allowance is

Employment Allowance was introduced in 2014 to reduce the cost of employing staff. It is a flat reduction in employers’ secondary Class 1 National Insurance Contributions, claimed and offset through PAYE to cut the employer NIC bill. For 2026/27 the allowance is £10,500, up from a maximum allowance of £5,000 in 2024/25.

The allowance is per employer, per tax year. The allowance applies against your national insurance liability each tax month or tax period until it is used up, then employer NI is paid normally. If your annual employer NI bill is less than £10,500, you simply do not pay any employer NI for that year. For the current thresholds and percentages behind that bill, see the National Insurance rates for 2026/27. Before April 2025, the national insurance contributions rate for employers was 13.8%; from April 2025 it rises to 15%, and the threshold falls to £5,000.

Employment Allowance is not a cash payment; it reduces PAYE liabilities reported through Real Time Information, while class 1 national insurance helps fund services such as the NHS and pensions.

Who can claim in 2026/27

Eligible employers are eligible to claim if they pay secondary Class 1 National Insurance Contributions on employees’ earnings. The main eligibility criteria:

  • You are a business or charity (companies, partnerships, sole traders employing staff)

  • You have at least one employee paid above the secondary threshold (£5,000 in 2026/27); this is the employer threshold, unlike the primary threshold that applies when employees start paying their own NIC

  • You are not in an excluded category

  • There may be other eligibility criteria depending on the employer and the work involved

The major change for 2026/27 (continuing from April 2025) is that the £100,000 cap on prior-year secondary Class 1 NI liability has been removed. Previously, employers with a NI bill of more than £100,000 in the previous tax year were excluded. That restriction is gone, so size of business no longer determines eligibility.

Employment Allowance can count toward de minimis financial support, so some businesses still need to consider state aid rules. Most UK employers will not need to consider them, but some Northern Ireland businesses under the Windsor Framework may still need to check the limits, especially where sector-specific rules apply.

Connected companies in a group can claim Employment Allowance, but only one company in the group can claim, and only one paye scheme can carry the claim if the business runs more than one. The directors must agree which entity will claim before the start of the tax year.

Who cannot claim or must stop claiming employment allowance

The main exclusions:

  • Single-director companies where the director is the sole employee liable for employer NIC above the secondary threshold. HMRC’s rule is designed to prevent the allowance applying where there is effectively no employee, only the director themselves. If there are other employees paid above the secondary threshold, the business may qualify for the whole tax year.

  • Public sector bodies (with limited charity sector carve-outs), and employers doing more than 50% of their work in the public sector may also be excluded.

  • Employers of personal carers in domestic settings (with exceptions where the carer is funded by a local authority).

  • Service companies (limited categories where most work is for one client and IR35-style arrangements apply), and deemed payments for off payroll workers do not make the employer eligible.

  • Connected companies beyond the one that has claimed in a group structure.

The single-director rule catches a very large number of small companies. The fix is straightforward: if you employ more employees paid above the £5,000 secondary threshold, the company becomes eligible.

How to claim employment allowance

Claiming is a tickbox exercise:

  1. Open your payroll software (Xero, QuickBooks, FreeAgent, Sage, BrightPay, or HMRC’s Basic PAYE Tools); if you use your own payroll software, you claim there instead

  2. In HMRC’s Basic PAYE Tools, select the relevant employer and go to change employer details

  3. Find the Employment Allowance section in employer settings and check the Employment Allowance indicator

  4. Mark the Employment Allowance indicator as “Yes” to make the employment allowance claim for the current tax year

  5. Confirm any state aid declarations (most SMEs are below thresholds and tick “no other de minimis state aid”)

  6. Submit your next Employer Payment Summary (EPS), the claim flows to HMRC through the EPS

A payroll provider can submit the claim on your behalf, but you remain responsible for checking eligibility.

You can claim at any point during the tax year, not only at the start. Once claimed, the allowance is offset against your monthly secondary NI bill from that point onwards.

To backdate a claim for previous years, you submit an EPS for the year in question, ticking the Employment Allowance box. You can backdate for the previous four tax years. HMRC will refund any overpaid PAYE or offset the credit against current liabilities such as corporation tax. The same EPS is also used to reclaim statutory maternity pay, so small employers often handle both in one submission.

For a wider view of how Employment Allowance fits with other employer NI reductions, see our guide on employer’s NI cost and how to reduce it.

How Employment Allowance is applied to national insurance contributions

Once claimed, HMRC offsets the allowance against your annual National Insurance liability as it builds over the year in the order it accrues. For an employer with a steady £15,000 annual National Insurance bill, the offset works through the year:

  • Months 1 to roughly 8: full monthly NI offset by allowance, so you pay £0 employer NI

  • Month 9 onwards: allowance exhausted, showing how much allowance has been used and how much allowance remains at the point it runs out, so you pay full employer NI for remaining months

The offset is pro-rated through the year automatically by your payroll software’s RTI engine, and you can check the credit in your PAYE account rather than tracking it manually.

Common mistakes

Five mistakes account for most Employment Allowance failures:

  • Forgetting to re-tick at start of year. The claim continues from year to year in most software, but you should confirm at the start of each tax year. If you change payroll software mid-year, the claim does not always carry across.

  • The single-director error. Many small Ltd companies tick the box even though they only have one director and no other employee earning above the threshold. HMRC eventually picks this up and reclaims the allowance.

  • Connected companies trap. Group structures where two connected companies both claim the allowance. Only one can claim, HMRC will reclaim from the other.

  • De minimis state aid mis-declaration. Few SMEs are caught by the cap, but those receiving multiple state-aid-classified grants need to declare them.

  • Stop claiming employment allowance too early. You should only end a claim if you are no longer eligible, not just because you reached the annual cap or an employee left. Setting the Employment Allowance indicator to “No” too early can trigger repayment of reductions already given.

  • Not backdating when entitled. Many small employers do not realise they can backdate up to four years. If you have only claimed for the current year and were eligible in earlier years, file backdated EPS submissions.

Key takeaways

  • Employment Allowance for 2026/27 is £10,500

  • The £100,000 prior-year NI cap has been removed

  • Single-director companies cannot claim where the director is the only paid employee

  • Only one company in a connected group can claim

  • Claims are made through the Employer Payment Summary, with up to four years’ backdating

  • The allowance is a credit against secondary Class 1 NI, not a cash payment

Frequently asked questions

How much is Employment Allowance in 2026/27? £10,500 per eligible employer per tax year. In 2024/25, the maximum allowance was £5,000 before rising to the current level. The £100,000 NI liability cap that previously restricted eligibility has been removed.

Can a single-director limited company claim Employment Allowance? No, not if the director is the only employee earning above the secondary threshold. If the company has a second director or any employee paid above the £5,000 threshold, eligibility is restored for the whole tax year. Eligibility still depends on meeting the wider eligibility criteria, not just having another worker above the threshold.

Can I backdate a claim? Yes, by up to four prior tax years. Submit an Employer Payment Summary for each year you want to claim, ticking the Employment Allowance box. HMRC offsets or refunds the resulting credit, and a successful late claim may be set against current liabilities including Corporation Tax if relevant.

How is Employment Allowance applied to my PAYE bill? It helps small businesses reduce their national insurance and manage employment costs through payroll by offsetting month by month against your secondary Class 1 NI liability in your payroll software’s RTI engine, until the allowance is exhausted. Your monthly NI payments to HMRC are reduced accordingly.

Does Employment Allowance count as state aid? Yes, it is treated as de minimis state aid under UK subsidy control rules, with a general limit of €300,000 over a rolling three-year period. Most SMEs are far below the limit, but if you receive multiple government grants you should check.

Useful resources

GOV.UK, Claim Employment Allowance https://www.gov.uk/claim-employment-allowance

GOV.UK, Rates and thresholds for employers 2026 to 2027 https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027

HMRC, Employment Allowance technical guidance https://www.gov.uk/government/publications/employment-allowance-more-detailed-guidance