If you employ staff in the UK, there is a good chance you are entitled to pay up to £10,500 less in employer National Insurance this tax year. The relief is called Employment Allowance, and it is one of the most valuable payroll savings available to small employers. Yet many businesses miss it, either because they have never claimed or because they wrongly believe their payroll is too large to qualify.
This guide explains what Employment Allowance is worth in 2026/27, who can claim it, and exactly how to claim it through your payroll software.
What is Employment Allowance?
Employment Allowance is a government relief that reduces the amount of employer Class 1 National Insurance (often called secondary Class 1 NICs) a business has to pay. It is not a cash payment and it is not a tax refund. Instead, each time you run payroll, the allowance reduces the employer National Insurance due until either the full £10,500 has been used or the tax year ends on 5 April, whichever comes first.
The allowance is set per business, not per employee. A company with two employees gets the same maximum £10,500 as a company with two hundred. If your total employer National Insurance bill for the year is lower than £10,500, you can still claim, but the relief is capped at your actual bill. You cannot receive the unused balance as cash, and it does not carry forward to the next tax year.
Crucially, Employment Allowance only offsets employer National Insurance. It does not reduce PAYE income tax, the National Insurance deducted from your employees’ pay, or Class 1A National Insurance on benefits.
How much is Employment Allowance worth in 2026/27?
For the 2026/27 tax year, Employment Allowance is worth up to £10,500. That figure has applied since 6 April 2025, when it more than doubled from the previous £5,000.
To understand what that means in practice, it helps to look at how employer National Insurance is charged. For 2026/27, employers pay Class 1 National Insurance at 15% on each employee’s earnings above the secondary threshold of £5,000 a year (applied as £96 a week or £417 a month). At a 15% rate, the full £10,500 allowance covers the employer National Insurance on £70,000 of pay above the threshold.
Suppose your business employs three full-time staff, each earning £30,000. Employer National Insurance at 15% on earnings above £5,000 gives £3,750 per employee (£25,000 x 15%), a total bill of £11,250. With Employment Allowance claimed, the first £10,500 is covered and you pay only £750 for the year. Without the claim, you pay the full £11,250.
Who can claim Employment Allowance?
Most UK employers can claim, provided they meet the eligibility tests. You can claim if you are a business, a charity (including a community amateur sports club), or an employer of a care or support worker, and you employ at least one person who is paid above the secondary threshold.
There are, however, several important exclusions:
- Single-director companies. If your company has only one director and that director is the only employee liable for secondary Class 1 National Insurance, you cannot claim. This catches out most small limited companies. If the company employs at least one other person paid above the £5,000 threshold, it can qualify for that year.
- Public sector work. You cannot claim if you are a public body, or a business doing more than half of your work in the public sector (for example, for local councils or NHS services), unless you are a charity.
- Domestic and personal workers. You cannot claim for someone you employ for personal, household or domestic work, such as a nanny or gardener, unless they are a care or support worker.
- Off-payroll workers. Earnings within the IR35 off-payroll working rules cannot be included in a claim.
Two further limits apply: only one company in a group of connected companies or charities can claim, and a business with more than one payroll or PAYE reference can only claim against one of them.
The April 2025 change that opened the allowance to larger employers
Before 6 April 2025, there was an additional test: your employer Class 1 National Insurance bill in the previous tax year had to be under £100,000. Any employer above that line was locked out entirely, however small their current payroll.
That £100,000 cap was removed from 6 April 2025 and remains removed for 2026/27. Employers of any size can now claim, provided they pass the other eligibility tests. This is the single biggest reason to re-check your position: a business that was correctly ineligible in 2024/25 may be fully eligible now, and many guides written before 2025 still describe the old rule.
One related point: for most businesses, Employment Allowance no longer involves a de minimis state aid declaration. The state aid limits still matter only for a narrow group, principally businesses in Northern Ireland that make or sell goods or wholesale electricity.
How to claim Employment Allowance: step by step
Claiming is straightforward, but it must be done every tax year. It does not roll over automatically, and forgetting to re-claim is the most common reason businesses lose a year’s relief.
Step 1: Check your eligibility. Work through the exclusions above, paying particular attention to the single-director rule if you run a limited company.
Step 2: Claim through your payroll software. In most payroll software, you set the Employment Allowance indicator to “Yes” in the Employer Payment Summary (EPS) you send to HMRC. Your software then reduces the employer National Insurance due on each pay run until the £10,500 is used up.
Step 3: If your software has no EPS field, use HMRC’s Basic PAYE Tools. Select the correct employer name from the Employer menu, open the Employment Allowance section, confirm eligibility, and send your EPS as normal.
Step 4: Claim at any point in the year. You do not need to have claimed before the tax year started. If you claim part-way through the year, HMRC applies the unused allowance against earlier months, so you still get the full benefit for the year, up to your actual liability.
Step 5: Check your claim took effect. You can see how much Employment Allowance you have used in your HMRC online account. HMRC will not send a confirmation letter, but a rejected claim triggers an automated message within five working days.
If you claim late and do not use the full allowance against your employer National Insurance for the year, you can ask HMRC to set the unclaimed balance against any other tax or National Insurance you owe, including VAT and Corporation Tax, or to refund it after the tax year ends if you owe nothing. You cannot, however, claim a refund for the gap between your actual liability and the full £10,500 if your liability was simply lower.
If you stop being eligible during the year, set the indicator to “No” in your next EPS. Do not set it to “No” just because you have reached the £10,500 limit early; reaching the limit does not make you ineligible, and stopping a claim before 5 April removes the allowance already given for that year.
Can you backdate a claim for previous years?
Yes. If you were eligible in an earlier year but did not claim, you can backdate a claim for up to four previous tax years. In 2026/27, that window reaches back to 2022/23, but the deadline for the 2022/23 year is 5 April 2027, so time is short for the oldest year.
The allowance was worth different amounts in earlier years, and the old £100,000 cap still applies to those years:
- 2022/23: £5,000, and the previous year’s employer Class 1 bill must have been under £100,000
- 2023/24: £5,000, same £100,000 condition
- 2024/25: £5,000, same £100,000 condition
- 2025/26: £10,500, no £100,000 limit
Added together, the four open years carry a theoretical maximum of £25,500 for a business that was eligible throughout and never claimed. If you think you have missed claims, check all four years before the 2022/23 window closes.
Common mistakes that cost employers money
- Assuming the claim renews itself. It must be claimed fresh every tax year; a 2025/26 claim does nothing for 2026/27.
- Assuming a director-only company qualifies. A limited company with a sole director and no other staff paid above the threshold cannot claim, even though it runs payroll.
- Claiming on every payroll. A business with multiple PAYE schemes gets one allowance, not one per scheme.
- Forgetting the group rule. Only one company in a group of connected companies can claim.
- Stopping the claim early. Setting the indicator to “No” because the £10,500 ran out removes the relief already given.
- Not checking backdated years. Missed claims from 2022/23 expire on 5 April 2027.
Frequently asked questions
Does Employment Allowance reduce my employees’ National Insurance? No. It only reduces the employer’s secondary Class 1 National Insurance. Employee National Insurance and PAYE income tax are unaffected.
Do I qualify if I only employ one person? Yes, if that employee is paid above the £5,000 secondary threshold and is not the sole director of your company.
What if my employer National Insurance bill is less than £10,500? You can still claim, but the allowance is capped at your actual bill. The unused balance is not paid to you and does not carry forward.
Can I claim if I use a payroll bureau? Yes, provided you are the employer and meet the eligibility tests. Your payroll provider will normally set the Employment Allowance indicator on your EPS, but check that they have actually done so each tax year.
How long should I keep records of my claim? Keep payroll records for at least three years after the end of the tax year they relate to, so you can evidence your claim if HMRC asks.
Related reading: If you are new to employing staff, start with our guide to how to hire your first employee in the UK. For the wider payroll picture, read our payroll guide for small businesses and our explanation of how PAYE works. Finally, our guide to employer National Insurance contributions explains the 15% rate and £5,000 threshold that Employment Allowance is set against.
