Answers · UK 2025/26

What is Employment Allowance and how much can my business claim?

Employment Allowance lets eligible small employers reduce their annual employer National Insurance bill by up to £10,500 for 2026/27. It is claimed through payroll software, but most single-director companies with no other employees are excluded, and total eligibility is restricted for businesses with employer NI liabilities above £100,000 in the previous tax year.

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Employment Allowance is designed to reduce the National Insurance cost burden on smaller employers, making it cheaper to employ staff, particularly for businesses just starting to grow their workforce. **How much can be claimed for 2026/27** Eligible employers can reduce their employer Class 1 National Insurance bill by up to £10,500 in the 2026/27 tax year -- claimed cumulatively through payroll across the year until either the full allowance is used or the tax year ends, whichever comes first. **The single-director exclusion** A significant restriction is that companies where the only employee paid above the Secondary Threshold is a director (i.e., single-director companies with no other staff) cannot claim Employment Allowance at all -- this closes off the allowance for a large number of small "one-person" limited companies, which is an important planning consideration when deciding on salary/dividend splits, since the usual Employer NI savings from Employment Allowance simply are not available to these businesses. **The £100,000 threshold restriction** Employers whose total employer Class 1 National Insurance liability in the previous tax year exceeded £100,000 are not eligible to claim Employment Allowance in the current year -- this excludes larger employers, keeping the allowance targeted at genuinely small and medium businesses. **De minimis state aid rules** Because Employment Allowance is treated as a form of state aid for some sectors, businesses in certain industries need to check they remain within relevant de minimis state aid limits across a rolling period -- most small businesses outside heavily regulated sectors like agriculture, fisheries, and road transport will not be affected in practice, but it is worth checking sector-specific guidance if operating in an affected industry. **How to claim** Employment Allowance is claimed through payroll software (most modern payroll systems include a simple checkbox or setting) rather than through a separate application process -- once claimed for a tax year, it continues automatically in future years unless your circumstances change and you become ineligible, though it is good practice to review eligibility each year. **Worked example** A small business with three employees (excluding the owner, who takes a small director's salary) has an employer NI bill for the year that would otherwise be £8,000. Because they are eligible for Employment Allowance, this full £8,000 liability is offset entirely, meaning the business pays no employer NI at all for that tax year -- a saving that directly benefits cash flow and can make hiring an additional part-time member of staff considerably cheaper. **Why eligibility matters for salary/dividend planning** For eligible businesses with more than one employee (including some part-time staff alongside the director), Employment Allowance can make a higher director salary more attractive than it would otherwise be, since some or all of the employer NI cost on that higher salary may be absorbed by the allowance -- changing the usual salary/dividend optimisation calculation in favour of a higher salary component. **Practical tip** If you employ anyone beyond a sole director (even a single part-time employee paid above the Secondary Threshold), check your eligibility for Employment Allowance each tax year via your payroll software, since it is a straightforward, automatic saving that is sometimes overlooked, especially by newly incorporated small businesses.