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.
What Employment Allowance is
Employment Allowance was introduced in 2014 to reduce the cost of employing staff. It is a flat reduction in your secondary Class 1 NI bill, claimed and offset through PAYE. For 2026/27 the allowance is £10,500.
The allowance is per employer, per tax year. It is offset against your monthly NI bill until exhausted, 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.
Employment Allowance is not a cash payment. It is a credit against PAYE liabilities reported through Real Time Information.
Who can claim in 2026/27
Most employers who pay secondary Class 1 NI can claim. The headline 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) and that employee is not the only director
- You are not in an excluded category
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 prior tax year were excluded. That restriction is gone, so size of business no longer determines eligibility.
Employment Allowance counts as de minimis state aid under UK subsidy control rules. A general limit of €300,000 (approximately £260,000) applies over a rolling three-year period, with sector-specific lower limits for agriculture and fisheries. Most employers do not approach the limit, but it can matter for businesses receiving multiple state-aid-classified supports.
Connected companies in a group can claim Employment Allowance, but only one company in the group can claim. The directors must agree which entity will claim before the start of the tax year.
Who cannot claim
The main exclusions:
- Single-director companies where the director is the only employee paid 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 a second person earns above the secondary threshold, eligibility is restored for the whole tax year.
- Public bodies (with limited charity sector carve-outs).
- 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).
- 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 even one additional person paid above the £5,000 secondary threshold, the company becomes eligible. A second director, an apprentice, or a part-time employee can all do this.
How to claim
Claiming is a tickbox exercise:
- Open your payroll software (Xero, QuickBooks, FreeAgent, Sage, BrightPay, or HMRC Basic PAYE Tools)
- Find the Employment Allowance section in employer settings
- Tick to claim Employment Allowance for the current tax year
- Confirm any state aid declarations (most SMEs are below thresholds and tick “no other de minimis state aid”)
- Submit your next Employer Payment Summary (EPS) — the claim flows to HMRC through the EPS
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 tax years, you submit an EPS for the year in question, ticking the Employment Allowance box. You can backdate up to four prior tax years. HMRC will refund any overpaid PAYE or offset against current liabilities.
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
Once claimed, HMRC offsets the allowance against your monthly employer NI bill in the order it accrues. For an employer with a steady £15,000 annual NI 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, you pay full employer NI for remaining months
The offset is pro-rated through the year automatically by your payroll software’s RTI engine. You do not need to track 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.
- 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. 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.
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.
How is Employment Allowance applied to my PAYE bill? It is offset month by month against your secondary Class 1 NI liability through 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