UK Employment Allowance 2026/27: 10,500 pounds Reduction in Employer NI

What Is the Employment Allowance?

The Employment Allowance is a relief that lets eligible UK employers reduce their annual employer Class 1 National Insurance (NI) liability. For 2026/27, the allowance stands at £10,500 per tax year -- a significant increase from the previous £5,000 cap that applied before April 2025.

If your employer NI bill is less than £10,500 for the year, the allowance reduces it to zero. If your employer NI bill is higher, you pay the remainder after the allowance has been applied.

The April 2025 Changes

The October 2024 Autumn Budget introduced two important changes effective from 6 April 2025:

1. The Employment Allowance increased from £5,000 to £10,500
2. The employer NI rate increased from 13.8% to 15% on earnings above the Secondary Threshold
3. The Secondary Threshold fell from £9,100 to £5,000 per employee per year

These changes pulled in opposite directions. The larger allowance benefits smaller employers, while the lower Secondary Threshold and higher NI rate increased costs for all employers on each individual employee.

For 2026/27, these remain the applicable rates and allowances:

| Employer NI Rate | 15% (above £5,000 per employee) | | Employment Allowance | £10,500 |

Who Can Claim?

You can claim the Employment Allowance if you are a business or charity that pays employer Class 1 NI, and your employer NI bill for the previous tax year was under £100,000.

Eligible Employers Include

• Limited companies with at least one employee who is not also the sole director
• Partnerships
• Sole traders with employees
• Charities
• Community Amateur Sports Clubs (CASCs)

Ineligible Employers

• Sole directors with no other employees -- if you are the only person on the payroll and you are also a director, you cannot claim
• Domestic employers -- if you employ someone solely for personal, household, or domestic work (e.g. a cleaner, gardener, or nanny), you cannot claim. If the same person also does business work, you may be eligible for the proportion related to business duties
• Public bodies funded by at least 50% of public funds (some exceptions apply for charities and CASCs)
• Connected companies -- see below

The £100,000 NI Bill Threshold

The eligibility cap means the Employment Allowance is specifically targeted at smaller employers. If your employer NI liability for the previous tax year exceeded £100,000, you cannot claim in the current year. This threshold is assessed on the employer's total NI bill, not per employee.

Connected Companies

If your business is connected to one or more other businesses -- for example, you own two limited companies that are under common control -- the companies must share a single Employment Allowance between them. Only one company in the group can claim the allowance.

HMRC defines "connected" broadly. Two companies are connected if one controls the other, or if the same person or persons controls both. "Control" generally means owning more than 50% of the shares or voting rights.

If you have connected companies, decide which entity will claim the £10,500 allowance -- typically the one with the highest employer NI liability.

How Much Can You Save?

The Employment Allowance directly offsets your employer NI bill. Here are some worked examples for 2026/27, assuming the employer NI rate is 15% and the Secondary Threshold is £5,000 per employee.

Example 1: Small Business with 2 Employees

Two employees each earn £30,000.

Employer NI per employee: (£30,000 - £5,000) x 15% = £3,750

Total employer NI = £7,500

Employment Allowance = £7,500 (the full bill is covered, with £3,000 unused)

Net employer NI = £0

Example 2: Growing Business with 5 Employees

Five employees each earn £35,000.

Employer NI per employee: (£35,000 - £5,000) x 15% = £4,500

Total employer NI = £22,500

Employment Allowance = £10,500

Net employer NI = £12,000

Example 3: Director-Only Company

Sarah runs a limited company. She is the sole director and the only person on the payroll.

Cannot claim Employment Allowance. The director-only exclusion applies.

If Sarah then hires an employee (even part-time), the company becomes eligible in the following year -- or potentially in the same year if the employment begins during the year.

How to Claim

Claiming is straightforward and does not require a separate form or HMRC application. The process:

1. Open your payroll software (must be Real Time Information compliant)
2. Find the Employment Allowance setting -- usually a tick box or indicator called "Employment Allowance" or "EA claim"
3. Set it to Yes and specify that you are claiming for the current tax year
4. Submit this via the Employer Payment Summary (EPS) to HMRC

HMRC applies the allowance automatically against your monthly employer NI payments. In the first months of the year, you may pay no employer NI at all until the £10,500 is used up, then pay the normal amount for the rest of the year.

If you forget to claim at the start of the year, you can still claim during the year or at year end. You can even claim for up to 4 previous tax years if you were eligible but did not claim.

Claiming for Previous Years

You can backdate claims to the 2022/23 tax year (subject to the £100,000 threshold applying in the relevant year). To claim for a previous year:

• Set the Employment Allowance indicator on an EPS submission for the relevant tax year (you can submit an EPS for a past year via most payroll software)
• HMRC will credit the overpaid NI against future liabilities or issue a repayment

If you are claiming for multiple previous years, check the allowance that applied in each year (it was £3,000 in 2022/23, £5,000 in 2023/24 and 2024/25, and £10,500 from 2025/26).

Employment Allowance and State Aid

Until April 2024, the Employment Allowance was classified as de minimis state aid for some businesses, which meant it counted toward an EU-derived spending limit. Following the UK's departure from the EU and subsequent changes to subsidy control rules, this state aid classification was removed from April 2024. The Employment Allowance now operates without reference to any subsidy control threshold for most businesses.

Interaction with Other Employer NI Reliefs

The Employment Allowance stacks alongside other employer NI reliefs:

• Zero-rate employer NI for employees under 21 -- if you employ staff under 21, employer NI is 0% up to the Upper Secondary Threshold (£50,270). The Employment Allowance is applied to any remaining employer NI on employees 21 and over.
• Zero-rate for apprentices under 25 -- similarly, no employer NI is due for apprentices under 25 up to the Apprentice Upper Secondary Threshold.
• Freeport and Investment Zone employer NI zero-rate -- if you operate in a qualifying freeport or investment zone, new employees in those zones may attract a zero rate. The Employment Allowance applies to other employer NI outside those reliefs.

Practical Tips

• Claim on day one of the tax year -- there is no benefit to waiting, and claiming early means you pay less NI in the early months of the year, improving cash flow
• Review connected company status annually -- if you set up a new company, check whether it affects which entity should claim
• Hire your first employee strategically -- if you are a sole director, hiring even one part-time employee allows you to claim in the following tax year
• Keep your payroll software up to date -- HMRC requires RTI-compliant software; using outdated software can prevent the EPS submission from being recognised

Summary

The Employment Allowance for 2026/27 is £10,500 -- more than double its previous level. For small businesses with modest employer NI bills, it can eliminate the entire charge. Claim it through your payroll software at the start of the tax year, and backdate claims for up to 4 years if you missed out. The main exclusions to watch are the director-only company rule, the £100,000 NI threshold, and the connected companies rule.