Employment Allowance 2026/27: Eligibility & Claim Guide

The Employment Allowance is an HMRC relief that reduces the employer (secondary) Class 1 National Insurance your business pays each tax year. For 2026/27 it is worth up to £10,500 per employer — not per employee.

Key points:

• it offsets employer NI only, never employee NI or income tax
• it applies each pay period as your employer NI liability builds up, until the £10,500 is used
• it must be claimed every tax year — it does not roll over automatically
• it counts as de minimis state aid, so sector caps can apply to some businesses

The allowance is claimed through your payroll software as part of normal RTI reporting.

You can generally claim the Employment Allowance if you are a business or charity with a liability for employer Class 1 National Insurance. That includes:

• limited companies, sole traders and partnerships employing staff
• charities and community amateur sports clubs
• people employing a care or support worker, even if they are otherwise classed as domestic employers

If your business is part of a group of connected companies — for example under common control — only one company in the group can claim the allowance, so decide which one benefits most. Check the current detailed conditions on GOV.UK before claiming, especially if your structure changed during the year.

The main exclusions under HMRC rules:

• companies where the only employee paid above the secondary threshold is also the sole director — a very common trap for one-person consultancies
• public bodies and organisations doing mostly public-sector work
• employers of domestic staff such as nannies or cleaners, unless the worker is a care or support worker
• deemed payments under the off-payroll working (IR35) rules, which do not attract the allowance

If you claimed in a year when you were not eligible, HMRC can recover the relief with interest, so verify eligibility each April rather than assuming last year's claim still applies.

Employers pay Class 1 National Insurance at 15% on each employee's earnings above the secondary threshold of £5,000 a year. Employees separately pay 8% on earnings between £12,570 and £50,270, and 2% above that — but the allowance never touches the employee side.

Quick example: an employee on a £30,000 salary generates employer NI of 15% × (£30,000 − £5,000) = £3,750 for the year. An employer claiming the Employment Allowance pays nothing for this employee until the running total of employer NI across all staff passes £10,500. The employer NI calculator on this site shows the liability for any salary, and our employer NI rates 2026/27 guide covers the thresholds in full.

A small business has three employees whose combined employer NI liability for 2026/27 comes to £9,800. With the allowance claimed, it pays £0 in employer NI all year; the unused £700 of allowance lapses and cannot be carried forward.

A second business has a total employer NI liability of £14,000. The allowance absorbs the first £10,500, so it pays £3,500 over the year — spread across the months after the allowance runs out.

The planning point: if your expected employer NI is at or below £10,500, the allowance makes your employer NI bill zero, which materially changes the true cost of hiring. Model it with the employee cost calculator before setting salaries.

You claim the Employment Allowance through your payroll software — there is no separate application form. The steps:

• check your eligibility for the new tax year
• in your payroll software, set the Employment Allowance indicator on the Employer Payment Summary (EPS)
• submit the EPS to HMRC; the allowance then reduces each employer NI payment automatically
• re-claim every April — last year's claim does not carry over

Missed a year? You can normally still claim for any of the four previous tax years by submitting an EPS for the relevant year, and HMRC will offset or repay the amount. If your software lacks the option, HMRC's Basic PAYE Tools supports the claim.

The errors that most often cost employers this relief:

• assuming the claim rolls over — it must be made fresh each tax year
• more than one connected company in a group each claiming the full allowance
• sole-director companies claiming when no other employee is paid above the secondary threshold
• forgetting the de minimis state aid rules, which cap total aid for businesses in certain sectors and require you to keep records
• not checking the claim actually reduced the liability shown on the EPS and HMRC account

If you discover an incorrect claim, correct it through your payroll software promptly — HMRC treats overclaimed allowance as unpaid NI.

Check whether the business has employer Class 1 secondary NI, then check exclusions: single-director companies with no other employees, certain public-sector bodies, domestic staff and connected-company restrictions. If more than one connected company could claim, choose one claimant. If de minimis state-aid rules apply, check the relevant sector ceiling before making the declaration in payroll software.

Employment Allowance reduces the employer NI bill until the annual allowance is used. A small employer may have no employer NI to pay for several months, while a larger employer may use the allowance quickly and then pay employer NI as normal. For budgeting, calculate employer NI before allowance, then track how much allowance remains across the whole payroll rather than attaching it permanently to one employee.

Employers can often claim Employment Allowance during the tax year through payroll software and may be able to claim for previous years if eligible. A mid-year claim normally offsets future PAYE liabilities first and may create a credit. Keep evidence of eligibility, connected-company decisions and de minimis declarations in case HMRC asks for support.