Answers · UK 2025/26

What is the Employment Allowance for employers?

The Employment Allowance lets eligible small employers reduce their employer National Insurance bill by up to £10,500 a year in 2026/27, applied against their Class 1 secondary NI liability through payroll software. Most small businesses qualify, but single-director companies with no other employees, and businesses with an employer NI bill over £100,000 in the previous year, are excluded.

Last updated: 2 July 2026Last reviewed: 2 July 2026How we verify

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The Employment Allowance is a valuable relief for small and medium employers, directly reducing the cost of employing staff by offsetting a portion of employer National Insurance contributions. **How much it's worth** For 2026/27, eligible employers can claim up to £10,500 off their employer (secondary) Class 1 National Insurance bill for the tax year -- this is claimed cumulatively through payroll software across the tax year until the full allowance is used, rather than as a single upfront payment. **Who is eligible** Most small and medium businesses, charities, and community amateur sports clubs with an employer Class 1 NI liability under £100,000 in the previous tax year are eligible -- the allowance is specifically designed to help smaller employers, with larger organisations excluded via this £100,000 threshold test. **Key exclusion: single-director companies** A company where the director is the only employee paid above the Secondary Threshold is NOT eligible for the Employment Allowance -- this exclusion specifically prevents very small one-person companies (common among certain contractors and consultants operating through their own limited company) from claiming it, since the allowance is intended for businesses genuinely employing staff beyond just the owner-director. **How to claim it** The allowance is claimed through your payroll software (or your accountant's payroll system) by indicating eligibility in your Employer Payment Summary (EPS) submission to HMRC -- it is not automatic, so employers must actively confirm eligibility and claim it each tax year. **How it reduces your NI bill through the year** Rather than receiving the allowance as a lump sum, it is applied to reduce your employer NI liability as you go through the tax year, offsetting your normal employer NI payments to HMRC until the £10,500 allowance is fully used, at which point you resume paying employer NI in full for the remainder of the year. **Worked example** A small business with 5 employees has an annual employer NI liability of around £18,000. Claiming the Employment Allowance reduces this to £7,500 (£18,000 minus the £10,500 allowance), spread as a reduction across their regular payroll submissions through the tax year rather than paid as a single refund. **Connected companies rules** If your business is part of a group of connected companies, only ONE company in the group can claim the Employment Allowance (not one allowance per company in the group) -- this prevents groups from splitting operations across multiple companies purely to claim multiple allowances. **Practical tip** Check your eligibility each tax year (particularly if your employer NI liability crossed the £100,000 threshold in the previous year, or if your company structure changed to become a single-director arrangement), since eligibility can change year to year and claiming when ineligible can result in HMRC recovering the relief plus potential penalties.