Can a sole director limited company claim the Employment Allowance of GBP 10,500 in 2026/27?

Full answer

The Employment Allowance (EA) is worth GBP 10,500 in 2026/27 and reduces an employer's Class 1A NI liability. However, a significant exclusion prevents many small limited companies run by a single director from accessing it. The sole director exclusion A limited company cannot claim the Employment Allowance if the only person on the payroll who earns above the Secondary Threshold (GBP 5,000 in 2026/27) is a director. Directors are classed as office holders, not employees for EA purposes. The EA was designed to support employment, and HMRC's view is that a sole director is not employing anyone other than themselves. When can a sole director company claim the EA? If the company employs at least one additional person -- even part-time -- who is not a director, and that person earns above the Secondary Threshold (GBP 5,000/year, GBP 96/week), the company becomes eligible for the EA. Common arrangements include: -- Employing a spouse, civil partner, or family member (even at modest hours) -- Employing an admin assistant or cleaner for a few hours a week -- The company secretary (if not a director) receiving pay above the threshold Connected companies If two or more companies are connected (under common control -- broadly the same person owns 51% or more of both), only one Employment Allowance can be claimed across the group. Connected companies must decide which company claims the GBP 10,500. Other excluded employers In addition to sole director companies, the EA cannot be claimed by: -- Employers of domestic staff (nannies, gardeners, etc.) in a private home -- this is a domestic arrangement -- Employers who are public authorities -- Service companies where the deemed employment payments under IR35 constitute the majority of the income Claiming the EA The EA is claimed by submitting an EPS (Employer Payment Summary) to HMRC with the Employment Allowance indicator set to yes. Once claimed, it automatically offsets against employer NI liabilities each month until exhausted or the end of the tax year. Impact on tax planning For a sole director on GBP 12,570 salary: employer NI = 15% x (GBP 12,570 - GBP 5,000) = GBP 1,135.50. Without EA, the company pays this. With EA (if eligible by employing one additional person), the GBP 10,500 EA would absorb this and GBP 9,364.50 of further employer NI on other payroll costs. The EA decision can significantly affect the optimal salary/dividend split and total tax efficiency.

Try the calculator