Employment Allowance 2026/27: How to Claim £5,000 Off Your NI Bill

Employment Allowance is one of the most straightforward tax reliefs available to UK employers, yet many small businesses either do not claim it or do not know it exists. In 2026/27 the allowance remains at £5,000 — meaning eligible businesses pay up to £5,000 less in employer National Insurance Contributions over the year. Here is everything you need to know.

What Is Employment Allowance?

Employment Allowance (EA) was introduced in April 2014 to reduce the cost of employing staff for small and medium businesses. It offsets your employer Class 1 NI liability — the 13.8% charge employers pay on employee earnings above the Secondary Threshold (£9,100/year in 2026/27).

The allowance works as a running credit: each month, your employer NI liability is first offset against the remaining allowance before any cash payment is required. Once the £5,000 is exhausted, normal monthly NI payments resume.

Example: Your employer NI bill is £700/month.

In this example, the company pays no employer NI for the first approximately 7.1 months, saving the full £5,000.

Who Is Eligible?

You can claim Employment Allowance if:

1. You are a business or charity (not a public body)
2. You pay employer Class 1 NI on employees' or directors' wages
3. Your employer NI liability in the previous tax year was below £100,000

That third condition was introduced in April 2020 to target the allowance at smaller businesses. If your employer NI bill for 2025/26 was £100,000 or more, you cannot claim EA in 2026/27.

Eligible Organisations

• Limited companies (with qualifying employees)
• Partnerships
• Sole traders with employees
• Charities and community amateur sports clubs (CASCs)
• Trusts

Who Cannot Claim?

There are several important exclusions:

1. Sole Director Companies (Director Only on the Payroll)

If you run a limited company and you are the only employee AND a director, you cannot claim Employment Allowance. HMRC's position is that the allowance was intended to support businesses that employ people other than just the owner.

To qualify, you need at least one other employee who is not a director — even a part-time employee earning above the Lower Earnings Limit (£6,396/year in 2026/27) will suffice.

Workaround note: Some directors add a spouse or family member to the payroll as an employee to qualify for EA. This is legitimate provided the person genuinely performs work for the business at a commercially reasonable wage. HMRC scrutinises arrangements that exist purely for EA eligibility.

2. Public Bodies

Companies and bodies where more than 50% of their activities are providing "public authority functions" are excluded. This includes government departments, NHS bodies, local authorities, and publicly-funded schools.

3. Domestic Employers

If you employ someone to work in your private home (nanny, housekeeper, cleaner, gardener) rather than in your business, those earnings do not count. Domestic employers cannot claim EA.

4. Service Companies Already Benefiting from IR35 Deemed Income

Where a company's income is treated as deemed employment income under IR35, the employer NI attributable to that deemed income is not eligible for EA offset.

How to Claim

There is no separate form to submit. Employment Allowance is claimed by:

1. Opening your payroll software (Xero, QuickBooks, FreeAgent, BrightPay, Sage Payroll, etc.)
2. Finding the employer settings or Employment Allowance section
3. Ticking the box to claim EA for the current tax year
4. Confirming the eligibility criterion (not a sole director company, not a public body, etc.)

Your software will then automatically offset the allowance against your employer NI payments each time you submit your RTI (Real Time Information) Full Payment Submission to HMRC.

Late Claims

You can claim EA retrospectively for up to four prior tax years. If you have been eligible since 2022/23 and never claimed, you may be able to recover up to £(4 years × £5,000) = £20,000 (subject to the specific allowance amounts in each year — the limit was £4,000 in 2022/23 and earlier years for some periods). Speak to your accountant or contact HMRC's employer helpline.

De Minimis State Aid

Employment Allowance is classified as de minimis state aid under the UK's subsidy control regime (which replaced EU state aid rules post-Brexit). The domestic de minimis limit is £315,000 over three rolling fiscal years for most sectors.

For most small and medium businesses, this is not a practical constraint — you would need to have received substantial other state aid in addition to EA to approach the limit. However, if your business:

• Receives Innovate UK grants
• Claims significant R&D tax credits (above SIRD thresholds)
• Has benefited from other government schemes (CBILS, restart grants, etc.)

…you may need to check whether cumulative state aid is approaching the threshold. Businesses in agriculture (£20,000 limit) and fisheries/aquaculture (£30,000 limit) have much lower caps and should take advice.

Employment Allowance and the Optimal Director Salary

One reason Employment Allowance matters to owner-director companies is its interaction with the optimal director salary decision. For companies that qualify for EA, the employer NI cost of paying a salary up to £12,570 is:

• Employee NI: zero (below employees' threshold)
• Employer NI: (£12,570 − £9,100) × 13.8% = £479/year
• EA: covers that £479 in full for eligible companies

This means eligible companies pay a salary of £12,570 with zero net NI cost, whereas non-eligible sole-director companies face £479 of employer NI per year — which is why the recommended salary for sole director companies ineligible for EA is often the Lower Earnings Limit (£6,396) instead, where no NI is due at all.

Interaction with Employer Pension Contributions

Employer NI is calculated on cash salary only — pension contributions made by the employer are not subject to employer NI. This is another reason why employer pension contributions are tax-efficient: they increase your overall remuneration without triggering NI from either party.

For EA purposes, what matters is your employer NI liability on wages paid. Making large employer pension contributions does not affect EA eligibility.

Summary Checklist

Follow these steps to ensure you are claiming correctly:

1. Check eligibility: employer NI < £100,000 in 2025/26, not a sole director, not a public body, not a domestic employer
2. Check your payroll software — is EA enabled for 2026/27? If you changed software, confirm the setting carried across
3. Review for any state aid obligations — particularly if you receive grants or have claimed R&D credits
4. Check prior year eligibility — if you forgot to claim for 2022/23 to 2025/26, consider a retrospective claim via HMRC's employer helpline or through your accountant
5. Re-assess annually: if you hire or lose employees, or if your employer NI approaches £100,000, your eligibility position may change

The Employment Allowance is free money — if you qualify, there is no reason not to claim it.