Employment Allowance in 2026: Who Can Claim £10,500 and How to Claim It

If you employ staff in the UK, the Employment Allowance is probably the single biggest saving available on your payroll, and it isn't automatic. This guide is for owners, bookkeepers and payroll managers who want to know whether they qualify in the 2026-27 tax year, how much it's worth, how to switch it on, and how to claim for years they missed. It covers the sole-director trap, connected companies, the public-sector test, and month-by-month examples in pounds.

Quick answer

The Employment Allowance cuts your employer Class 1 National Insurance by up to £10,500 a tax year. Most businesses and charities can claim it, and since 6 April 2025 there's no limit on the size of your NI bill. You claim by answering 'Yes' to the Employment Allowance indicator on an Employment Payment Summary (EPS), every tax year.

• Up from £5,000 before April 2025; the old £100,000 eligibility cap has gone

• Not available if your company's only employee paid above £5,000 is a sole director

• Only one company in a connected group can claim, against one PAYE scheme

• Missed it? You can claim back up to 4 tax years

• It offsets employer Class 1 only, not Class 1A on benefits or employees' own NI

What the Employment Allowance is

The Employment Allowance is a reduction in the National Insurance you pay as an employer. Each time you run payroll, your software works out the secondary Class 1 contributions due on your staff's earnings, currently 15% on pay above £5,000 a year. With the allowance switched on, that figure is wiped out pay run by pay run until you have used £10,500 or the tax year ends on 5 April, whichever comes first.

It is not a grant and it doesn't arrive as cash. It simply reduces what you send HMRC each month. If your employer NI for the whole year comes to less than £10,500, your bill is nil, but HMRC won't pay you the difference. Unused allowance doesn't roll into the next tax year.

The allowance only touches employer secondary Class 1 contributions. It can't be set against Class 1A National Insurance on benefits in kind such as company cars (reported on the P11D(b)), Class 1B on a PAYE Settlement Agreement, or your employees' own primary contributions, which you still deduct from their pay and pass to HMRC in full. Income Tax and student loan deductions are also unaffected, except where HMRC uses an unused balance from a late claim to clear other PAYE debts, which is covered below.

How much it's worth in 2026-27, and what changed

For the tax year running from 6 April 2026 to 5 April 2027 the maximum is £10,500. That figure took effect on 6 April 2025, when the government raised the allowance from £5,000 at the same time as it increased the employer rate from 13.8% to 15% and cut the secondary threshold from £9,100 to £5,000.

The same change removed a rule that had shut larger employers out. Until 2024-25 you could only claim if your employer Class 1 bill in the previous tax year was below £100,000. From 2025-26 that test has gone, so a business with 200 staff can claim in the same way as a corner café. The cap still matters for one group: anyone making a late claim for 2024-25 or earlier must still meet it for that year.

Employment Allowance at a glance (2026-27)

£10,500

Maximum per employer per tax year

Was £5,000 up to 2024-25

15%

Employer NI rate it offsets

On pay above £5,000 a year

4 tax years

How far back you can claim

Separate EPS for each year

1

Claims per connected group

Against one PAYE scheme

In practice the allowance now covers the whole employer NI bill for a lot of small firms. At 15% above £5,000, £10,500 is the employer NI on about £75,000 of pay above the threshold. That's roughly three full-time staff on £30,000, or five on £20,000, before you pay anything at all.

Who can claim

HMRC's starting point is broad: if you pay employer Class 1 National Insurance on at least one employee's earnings, you can probably claim. The groups HMRC names as eligible include:

• limited companies, sole traders and partnerships that employ staff and pay employer Class 1 contributions on their pay;
• registered charities, including those mainly carrying out public functions, and community amateur sports clubs;
• independent pharmacies, including those dispensing NHS prescriptions, and private or charitable schools, academies, colleges, universities and nurseries;
• franchise holders, subject to the connected-business rule;
• individuals who employ a care or support worker in their own home.

A sole trader with one employee qualifies; you don't need to be a company. The allowance is set against the employer NI on your staff's pay, not on your own profits, because sole traders and partners pay Class 4 through Self Assessment rather than Class 1.

Who can't claim

The exclusions are where most rejected claims come from. You can't claim if any of the following apply.

You're a public authority that isn't a charity. Local councils, town and parish councils and similar bodies are out, as is any business whose work is "wholly or mainly of a public nature". HMRC treats that as more than 50% of your work, measured by staff numbers, staff time or turnover. Its examples of public-nature work include NHS and GP services, running council housing, council refuse collection, prison services and debt collection for a government department. Supplying cleaning or security to a public building, or IT services to a council, doesn't count as public-nature work, so a contractor doing that work can still claim.

Your only employee above the threshold is a sole director. This rule, covered in detail below, catches thousands of one-person companies.

The staff are domestic employees. Nannies, cleaners, gardeners and others employed to run your household don't count, unless they are care or support workers.

The earnings are deemed payments under IR35. A personal service company can't set the allowance against the NI on a deemed payment under the off-payroll working rules. It can still use it against employer NI on salaries it actually pays its employees.

You're newly created by a demerger. Businesses that come out of a split aren't eligible in the year of the demerger, and can't pick up any unused balance from the old business.

Another company in your group is already claiming. Only one company or charity in a connected group can claim.

Eligibility check before you tick 'Yes'

0/6

• You pay employer Class 1 NI on at least one employee's pay
• Less than half your work is public-nature work (or you're a charity)
• At least two people are paid above £5,000, if you're a company with one director
• No other company or charity you're connected with is claiming this tax year
• The staff aren't household employees such as nannies or gardeners (care and support workers are fine)
• The business wasn't created by a demerger this tax year

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The single-director rule in detail

Since 6 April 2016, a limited company can't claim the Employment Allowance if it has just one director and that director is the only employee paid above the secondary threshold. The test is about who earns above £5,000 a year (£417 a month a month, £96 a week a week), not about headcount. HMRC's example is "M Ltd", which has a director paid above the threshold and four other employees paid below it. M Ltd can't claim, because the director is still the only person who generates employer NI.

The company becomes eligible when a second person is paid above the threshold. That can be another director, a spouse who is also a director, or an ordinary employee. HMRC's guidance gives several cases that qualify: two directors both above the threshold; a husband-and-wife pair of directors both above it; a business using seasonal staff where at least one is paid above the threshold in a week; and a sole UK employee of an international company who is paid above it.

Timing works in your favour. HMRC's example "X Ltd" isn't eligible in April, but takes on a second employee paid above the threshold in June; it is then eligible for the whole tax year, not just from June. The reverse also holds: if your other staff leave and the director becomes the only person above the threshold part-way through the year, you can keep the claim for that year, but you must stop it from the start of the next tax year unless you take someone else on. Directors appointed part-way through a year are tested against a pro-rata share of the annual threshold.

A director paid below the threshold doesn't stop a claim either. In HMRC's "J Ltd" example the director takes a small salary, another employee earns above the threshold, and the company is eligible.

Worked example: a two-director company. A company has two directors, each paid £12,570 a year. Each salary carries employer NI of (£12,570 − £5,000) × 15% = £1,135.50, so the company's bill is £2,271. Because two people are paid above the threshold, it can claim the allowance and pays no employer NI at all. If one director resigned and the other carried on alone, the company would lose the allowance from the following 6 April and pay £1,135.50 a year. The second salary must be paid for real work in the business; keep evidence of what each person does, because pay that isn't for genuine work can be challenged. For how salary interacts with dividends, see director salary vs dividends.

Connected companies and charities

If you own or control more than one company, only one of them can claim. Companies are connected if one controls the other, or if the same person or group of people controls both. Control means having more than half the voting power, share capital, rights to income or rights to assets on a winding-up. For an LLP, it means rights to more than half the assets or income. Sole traders and partnerships sit outside these rules.

Three details trip people up:

• The test is at the start of the tax year. If companies are connected on 6 April, they're treated as connected for the rest of that year, whatever happens later.
• A new company starts free. A subsidiary set up or bought after 6 April isn't treated as connected for the rest of that tax year, so it can claim in its first part-year. From the next 6 April it's caught by the group rule.
• Family links need commercial ties. Where companies are linked only because shares held by relatives are added together, they count as connected only if they are "substantially commercially interdependent": financially, economically (shared customers or a common goal) or organisationally (shared managers, staff, premises or equipment).

The group decides which company claims. HMRC's advice is to choose the payroll most likely to generate at least £10,500 of employer NI, because the claim can't be split between companies and unused allowance can't be moved to another PAYE scheme. Charities follow similar rules: two charities controlled by the same people with similar purposes are connected, and so is a charity and the trading company it controls. A business that controls a charity isn't treated as connected to it for this purpose.

How to claim on your EPS

You claim through the Employment Payment Summary, the monthly return employers use to tell HMRC about reductions to what they owe. There's no separate application form.

Claiming the Employment Allowance for 2026-27

1. 1

   Confirm you're eligible

   Check the public-sector test, the single-director rule and whether another company in your group is already claiming.

2. 2

   Set the indicator to 'Yes'

   In your payroll software, answer 'Yes' to the Employment Allowance indicator and send an EPS. In HMRC's Basic PAYE Tools, pick the employer, select 'Employment Allowance', check the criteria and send the EPS as normal.

3. 3

   Answer the state aid question

   Most employers answer 'No' to 'Do state aid rules apply?'. If you're a Northern Ireland business making or selling goods or wholesale electricity, choose your sector instead.

4. 4

   Watch for a rejection

   HMRC doesn't confirm claims. If it rejects one, you get an automated message within 5 working days.

5. 5

   Repeat every April

   The claim lasts one tax year. Send a new EPS with the indicator set after 6 April each year.

   Claim Employment Allowance on GOV.UK

You can claim at any point in the tax year, but claim early. The allowance starts working from the pay run after your EPS, and HMRC treats your employer NI as payable in full until you claim. If you claim late and haven't been able to use the whole allowance against Class 1 contributions, HMRC sets the unused balance against other PAYE you owe in the year, such as Income Tax and student loan deductions, and then other taxes including VAT and Corporation Tax. If you owe nothing, you can ask for a repayment after the tax year ends.

Changing payroll software during the year doesn't mean making a new claim, although you can resend the EPS if your new software needs it. If you run several PAYE schemes, choose one and keep the claim there: it can't be moved mid-year. You can switch schemes at the start of a new tax year, as long as you claim on the new scheme before making any PAYE payments on it. Keep records showing why you were eligible and how much allowance you used for at least 3 years after the end of the tax year.

How the allowance is used up through the year

Payroll software applies the allowance automatically once the indicator is set. In each pay period, the amount used equals your employer Class 1 for that period, until the £10,500 runs out. It comes off employer NI before anything else, such as recovered Statutory Maternity Pay, so it's always used first. If you run several payrolls under one PAYE reference, the allowance is applied to the scheme's combined liability.

Worked example: a manufacturer with 15 staff. Fifteen employees each earn £32,000. Employer NI per person is (£32,000 − £5,000) × 15% = £4,050 a year, so the monthly bill is £5,062.50 and the annual bill £60,750.

Cash flow is front-loaded: the business pays almost nothing for the first quarter, then the full bill from month four. Budget for that jump rather than assuming a lower monthly figure all year. HMRC's own example shows the same pattern: an employer with £1,050 of employer NI a month uses the full allowance by month 10 and pays in full for months 11 and 12.

Worked examples: what small employers pay

Because the April 2025 changes raised the rate, cut the threshold and more than doubled the allowance at once, the effect on a business depends on how many staff it has and what they earn. Here's the net employer NI bill after the allowance for three typical employers, comparing 2024-25 (13.8% above £9,100, £5,000 allowance) with 2026-27.

The four-person business saves £2,132.80 a year compared with 2024-25, because the bigger allowance more than makes up for the higher rate. The twenty-person business pays £11,816 more. Roughly, employers with a small team on average wages came out level or ahead, while those with ten or more staff pay more even after the allowance.

A café with mixed staff. A café employs two full-time staff on £26,000, three part-timers on £11,000 and a 19-year-old apprentice on £14,000. The full-timers cost £3,150 each in employer NI and the part-timers £900 each, a total of £9,000. The apprentice is on category H (and would be on category M as an under-21 anyway), so costs nothing up to £50,270. The allowance covers the £9,000 in full and £1,500 goes unused. Read more about category letters in our employer National Insurance guide.

Claiming for previous years

If you were eligible but didn't claim, you can go back up to 4 tax years after the end of the year in question. Each year needs its own EPS for that tax year with the indicator set to 'Yes'; you don't need to resend statutory payment figures you already reported. In October 2026, the claimable years are 2022-23 (deadline 5 April 2027), 2023-24, 2024-25 and 2025-26. The window for 2021-22 closed on 5 April 2026, although some older guides still list it.

The amount you can claim is whatever the allowance was in that year, capped at your actual employer Class 1 bill for the year: £5,000 for 2022-23 to 2024-25, and £10,500 for 2025-26. For 2024-25 and earlier, your employer NI in the year before must also have been below £100,000.

HMRC normally sets the money against your current or future PAYE bills; ask for a repayment if you'd rather have cash. Example: a two-director company paying each director £12,570 never claimed. Its employer NI was £957.72 in each of 2023-24 and 2024-25 (13.8% above the old £9,100 threshold) and £2,271 in 2025-26. It can send three past-year EPS returns and recover £4,186.44, because both directors were paid above the threshold in each year.

When you claim for a past year, the EPS asks about state aid. For most businesses the answer is that de minimis rules don't apply. They are likely to apply to Northern Ireland businesses that make or sell goods or wholesale electricity. Those businesses must add up any de minimis aid received in the year of the claim and the two before it, plus the full allowance for the year converted to euros, and stay below the sector limit, which is €200,000 for "industrial/other". HMRC then sends a letter confirming the de minimis aid; keep it, as you'll need it for future aid claims.

Stopping a claim, takeovers and other changes

When you stop being eligible. If you lose eligibility — for example, your company is down to a sole director at the start of a new tax year — send an EPS with the indicator set to 'No' and pay employer NI in full. Don't switch the indicator off just because you've used the whole £10,500 or temporarily have no employees; the claim simply sits there until there's employer NI to set it against. If you stop a claim before 5 April because you weren't eligible, any allowance given that year is removed and you pay the employer NI.

Change of ownership. When a business is sold, the seller's claim ends on the date of transfer. The buyer can claim up to the full allowance in its own right, but there's no way to pass on the seller's unused balance. If the buyer takes over staff, it doesn't inherit the seller's allowance for them, and the seller doesn't have to repay allowance already used.

Demergers. A company created by splitting a business can't claim in the year of the split. It may claim from the next tax year if it isn't connected to another claimant.

Budget 28 October 2026: what could change

The Chancellor delivers the next Budget on 28 October 2026. Employer National Insurance raised substantial revenue after April 2025 and the Employment Allowance is the main lever for protecting small employers, so the allowance amount, the eligibility rules and the employer rate are all possible targets. The secondary threshold is already frozen at £5,000 until April 2031. Any change to the allowance would normally start on 6 April 2027. We'll update this guide after the Budget; until then, plan on £10,500 for 2026-27.

Employment Allowance dates to diary

From 6 April 2026

Send an EPS with the indicator set to 'Yes' for 2026-27

28 October 2026

Autumn Budget — watch for changes from April 2027

5 April 2027

Last day to claim for 2022-23, and end of the 2026-27 tax year

From 6 April 2027

New claim needed for 2027-28

Common mistakes

Assuming the allowance carries over. It doesn't. Every April your payroll needs a new EPS with the indicator set, and many small employers only notice when the first pay run of the new year shows a full NI bill.

Claiming as a one-director company. Payroll software often lets you tick the box without checking. HMRC can check eligibility, and a rejected or later-revoked claim leaves you with employer NI to pay.

Claiming in more than one group company. This is the most common reason for a revoked claim among owners with several businesses. Decide at 6 April which company will claim and record why.

Expecting it to cover Class 1A. Company cars and other benefits carry Class 1A at 15%, paid by 22 July. The allowance can't be set against it.

Not claiming past years. If you only learned about the allowance this year, check every open year back to 2022-23 before 5 April 2027.

Official links

• Claim Employment AllowanceEligibility, how to claim, past years
• Employment Allowance: further guidanceSingle directors, connected companies, charities, care workers
• Claiming Employment Allowance: further guidanceOffsets, multiple schemes, past years
• Rates and thresholds for employers 2026 to 2027Employer NI rates and thresholds
• Basic PAYE ToolsFree HMRC software for EPS

What to do next

Open your payroll software and check that the Employment Allowance indicator was sent on an EPS for 2026-27; if it wasn't, send one before your next pay run and look back at every year to 2022-23. If you're taking on your first employee, register as an employer first, and cost the new role with employer NI, auto-enrolment and the allowance together. When the tax year closes, our payroll year-end checklist takes you through the final EPS and the new year's claim.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

How much is the Employment Allowance for 2026-27?

Up to £10,500 per employer per tax year. It reduces your employer (secondary) Class 1 National Insurance each pay run until the £10,500 is used or the tax year ends. It rose from £5,000 on 6 April 2025. If your total employer NI bill is smaller than the allowance, you pay nothing, but HMRC doesn't refund the unused difference.

Can a sole director claim the Employment Allowance?

No. A limited company can't claim if its only employee paid above the secondary threshold of £5,000 a year is a single director. It can claim once at least one other employee or director is paid above that threshold, and HMRC then treats it as eligible for the whole tax year. Staff paid below the threshold don't count towards eligibility.

Is there still a £100,000 limit on the Employment Allowance?

Not since 6 April 2025. Before then, you could only claim if your employer Class 1 National Insurance bill in the previous tax year was under £100,000. That condition still applies if you make a late claim for 2024-25 or an earlier year, but large employers can now claim for 2025-26 onwards.

How do I claim the Employment Allowance?

Set the Employment Allowance indicator to 'Yes' on your next Employment Payment Summary (EPS) in your payroll software, or in HMRC's Basic PAYE Tools. You must claim every tax year. HMRC doesn't confirm the claim; it sends an automated message within 5 working days if it's rejected. You can start using the allowance as soon as you send the EPS.

Can I claim the Employment Allowance for previous years?

Yes, for up to 4 tax years after the end of the year you're claiming for, using a separate EPS for each year. In late 2026 the earliest year still open is 2022-23, which must be claimed by 5 April 2027. Past-year amounts are £5,000 for 2022-23 to 2024-25 and £10,500 for 2025-26.

Can connected companies each claim the Employment Allowance?

No. If two or more companies are under common control at the start of the tax year, only one of them can claim, against one PAYE scheme, and the companies choose which. A company set up or bought after 6 April isn't treated as connected for the rest of that tax year, so it can claim in its first year.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 11 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Claim Employment Allowance (full guide) — HMRC / GOV.UK · accessed 11 October 2026
2. 2.Single-director companies and Employment Allowance: further guidance — HMRC · accessed 11 October 2026
3. 3.Eligibility for Employment Allowance: further employer guidance — HMRC · accessed 11 October 2026
4. 4.Connected companies and Employment Allowance: further guidance — HMRC · accessed 11 October 2026
5. 5.Claiming Employment Allowance: further employer guidance — HMRC · accessed 11 October 2026
6. 6.Changes to the Class 1 NICs secondary threshold, secondary rate and Employment Allowance — HMRC · accessed 11 October 2026
7. 7.Rates and thresholds for employers 2026 to 2027 — HMRC / GOV.UK · accessed 11 October 2026