Employment Allowance and the Single-Director Company Trap 2026/27

The Employment Allowance is a genuinely useful break for small employers, knocking up to GBP 10,500 off the employer National Insurance bill in 2026/27. But many owner-managed companies discover they cannot claim it, because of a restriction aimed squarely at single-director companies.

What the allowance does

Employers pay secondary Class 1 National Insurance at 15% on employee earnings above GBP 5,000 in 2026/27. The Employment Allowance lets eligible businesses offset up to GBP 10,500 of that bill. It reduces the company's National Insurance, not your personal tax or your own employee contributions.

The single-director restriction

Here is the rule that catches so many: a company cannot claim the Employment Allowance if the only employee paid above the secondary threshold is a director. In plain terms, a classic one-person limited company, with just you as director on the payroll, is not eligible.

The policy intent is to direct the allowance at businesses that genuinely employ other people, rather than at single-person companies using a director's salary alone.

Worked example

Lena runs her consultancy through a limited company. She is the sole director and only employee, and pays herself a salary of GBP 12,570.

• Employer National Insurance on the slice above GBP 5,000: 15% on GBP 7,570 = GBP 1,135.50.
• Employment Allowance available to her company: none, because she is the only employee and is a director.

Now suppose she hires a part-time administrator, a genuine non-director employee paid GBP 14,000 a year:

• The company now has an employee above the secondary threshold who is not a director.
• The company can claim the Employment Allowance for that tax year, offsetting up to GBP 10,500 of its total employer National Insurance, covering both Lena's and the administrator's employer NI.

The arrival of a second, genuine employee flips eligibility for the whole company.

Common questions owner-directors ask

• Does a spouse on the payroll help? Yes, if they are a genuine employee paid above the secondary threshold and not a director, the company can usually qualify. The employment must be real, with real duties and pay.
• What if I make my co-shareholder a director too? Two directors and no other staff does not generally restore eligibility, because the issue is the absence of a non-director employee paid above the threshold.
• Is it worth hiring just to claim it? No. The allowance offsets employer NI, but a salary is a far bigger cash cost than the NI saved. Hire because you need the help, not to chase the allowance.

Planning points

• Set the director salary deliberately. Without the allowance, every pound above GBP 5,000 carries 15% employer NI, so the optimal salary and dividend split changes.
• If you already employ genuine staff, make sure you are actually claiming the allowance through your payroll software each year. It is not automatic.
• Re-check eligibility each tax year, as your staffing can change.

A quick eligibility checklist:

• Are you the only employee on the payroll above GBP 5,000?
• Are you a director?
• If yes to both, the company is excluded this year.
• A genuine second non-director employee above the threshold restores eligibility.
• Confirm the claim is switched on in payroll.

This is general information, not financial or tax advice, and the Employment Allowance has detailed conditions including connected-company rules. Check the gov.uk guidance on Employment Allowance eligibility, and model your salary and National Insurance with the National Insurance calculator at calchub.uk.