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

From April 2026, the Employment Allowance increased to GBP 10,500 -- a significant jump from the GBP 5,000 limit that applied in 2025/26. For small businesses with a payroll, this is one of the most valuable reliefs available: a direct reduction in the employer National Insurance (NI) contributions you pay to HMRC each year.

This guide explains who qualifies, who is excluded, how the allowance interacts with your payroll and how to claim it correctly.

What Is the Employment Allowance?

The Employment Allowance reduces your employer Class 1 National Insurance bill by up to GBP 10,500 each tax year. It does not affect employee NI contributions or income tax -- it is purely a reduction in what the employer owes.

The allowance works on a cumulative basis throughout the year. Each month you run payroll, HMRC applies the available allowance against your employer NI liability until the GBP 10,500 is used up or the tax year ends.

Who Is Eligible?

Most businesses with employees are eligible, provided:

1. You pay at least one employee above the Secondary Threshold for National Insurance (GBP 5,000 per year / approximately GBP 96 per week in 2026/27)
2. Your employer Class 1 NI liability in the previous tax year was below GBP 100,000

That second condition was introduced in 2020 to target the allowance at smaller employers. Businesses with significant payroll costs -- typically those with 50+ employees on average UK salaries -- are likely to exceed the GBP 100,000 threshold and be ineligible.

Who Is Excluded?

The most common exclusions are:

Sole Director Companies

If the company has only one employee who is also a director, and no other employees earning above the Secondary Threshold, the Employment Allowance cannot be claimed. This rule specifically targets personal service companies and single-director limited companies where the director extracts salary and dividends.

If you add even one other employee paid above the Secondary Threshold -- a part-time assistant, for example -- the company becomes eligible.

Public Bodies

Most public-sector employers cannot claim. This includes local councils, NHS bodies and government departments. Some exceptions exist for charities that receive public funding.

Domestic Employers

If you employ someone solely for domestic work at your home -- a nanny, carer or cleaner -- that employment does not qualify. If the same person also does work connected to a business, the business element may qualify.

Connected Companies

Groups of companies under common control share a single Employment Allowance between them. Each company in the group can use a portion, but the total across all connected companies cannot exceed GBP 10,500.

Charities and CASCs

Charities and community amateur sports clubs (CASCs) are eligible for the Employment Allowance regardless of their previous year's employer NI bill -- the GBP 100,000 threshold does not apply to them. This makes the allowance particularly valuable for charitable organisations with paid staff.

How to Claim the Employment Allowance

You claim through your payroll software -- there is no separate form or HMRC application. The process:

1. In your payroll software, indicate that you are claiming the Employment Allowance for the tax year
2. Submit an Employer Payment Summary (EPS) to HMRC with the Employment Allowance indicator set to "Yes"
3. HMRC records the claim; your employer NI liabilities throughout the year are then reduced until the allowance is exhausted

You should submit the EPS at the start of the tax year (or before your first Full Payment Submission if you start mid-year). In practice, most payroll software handles this automatically when you tick the relevant box in settings.

Claiming for a Previous Year

If you forgot to claim in a previous year (up to four years ago), you can submit a late EPS or contact HMRC. HMRC will adjust your account, potentially resulting in a repayment or credit against future liabilities.

Interaction with Employer NI

The employer NI rate is 15% on earnings above the Secondary Threshold (GBP 5,000 per year per employee) for 2026/27. For a business employing five staff at GBP 30,000 each:

• Total employer NI = 5 x (GBP 30,000 - GBP 5,000) x 15% = GBP 18,750
• Employment Allowance = GBP 10,500
• Net employer NI payable = GBP 8,250

For a business with a smaller payroll -- say, two employees at GBP 25,000 each:

• Total employer NI = 2 x (GBP 25,000 - GBP 5,000) x 15% = GBP 6,000
• Employment Allowance = GBP 6,000 (fully covers the liability)
• Net employer NI payable = GBP 0

In the second example, only GBP 6,000 of the GBP 10,500 allowance is used. The remaining GBP 4,500 is lost -- it cannot be carried forward or refunded.

The GBP 100,000 Previous Year Threshold

To check eligibility, look at your employer NI bill for 2025/26. If it was GBP 100,000 or more, you cannot claim in 2026/27. If you are a new business or your employer NI varied significantly due to one-off payments (such as large bonuses), check carefully.

HMRC provides guidance on how to calculate the threshold if your liability was borderline. Connected companies must aggregate their liabilities when assessing the threshold.

What If the Allowance Is Not Fully Used?

If your employer NI liability is less than GBP 10,500 for the year, the allowance covers your full liability and you simply pay nothing. The unused portion cannot be reclaimed as cash. In this situation, the full benefit is simply that your employer NI bill is GBP 0.

However, if you have underpaid PAYE income tax or employee NI and have an Employment Allowance credit on your account, HMRC can offset the credit against those other liabilities -- reducing the amount you need to pay at the year-end reconciliation.

Use our Employment Allowance calculator to see how much the allowance saves your business in 2026/27.