Employment Allowance 2026/27: Who Qualifies and How to Claim £10,500

What is the Employment Allowance?

The Employment Allowance is a government scheme that allows eligible employers to reduce the amount of employer Class 1 National Insurance Contributions (NIC) they pay to HMRC each year.

For 2026/27, the allowance is £10,500 per tax year.

It works as a credit. Each time you run payroll and calculate employer NI, the Employment Allowance offsets the liability until the £10,500 is used up. Once exhausted, normal employer NI resumes.

Example:

An employer with monthly employer NI of £1,200 (£14,400/year):

• Months 1-8: no employer NI paid (£1,200 x 8 = £9,600 of allowance used).
• Month 9: £10,500 - £9,600 = £900 allowance remaining; NI paid = £300.
• Months 10-12: full £1,200/month employer NI paid.
• Total employer NI saved: £10,500.

Who qualifies?

An employer qualifies if:

1. It pays employees and is liable for employer Class 1 NI.
2. Its employer NI liability in the previous tax year was under £100,000.
3. It is not an excluded employer (see below).

The £100,000 threshold is assessed on the total employer NI liability, not payroll size. An employer with 3 highly paid employees could exceed £100,000 and lose entitlement.

If you are newly trading (no previous tax year), you are eligible as long as you do not expect your NI liability to reach £100,000 in the current year.

Who cannot claim?

1. Single-director companies

A company where the only employee is also a director cannot claim. This rule was introduced in April 2016 and remains in force for 2026/27.

If the director employs additional staff during the year, eligibility may be restored -- but only once another employee has earnings above the secondary NI threshold (£5,000/year) that generate employer NI.

Example:

A consultant operates through a limited company as its sole director and employee. The company cannot claim Employment Allowance. If the same person hires an assistant on £12,000/year, the employer NI on the assistant's salary above £5,000 is £1,050. The company now has an employee other than the director and can claim the full £10,500 allowance -- saving the entire £1,050 employer NI on the assistant and up to a further £9,450 on the director's own salary.

2. Employers who employ domestic staff only

If your only employees are employed in a personal or domestic capacity -- cleaners, nannies, gardeners, chauffeurs at your private home -- you cannot claim Employment Allowance.

This is separate from using a formal household payroll or domestic payroll service. The exclusion applies based on the nature of the work, not the payroll arrangement.

3. Public bodies and bodies exercising statutory functions

Employers such as local councils, NHS bodies, and government departments cannot claim. Private companies providing outsourced services to public bodies can claim, as long as they are not themselves public bodies.

4. Connected companies already claiming

If your company is part of a connected group that is already claiming Employment Allowance elsewhere in the group, you cannot make a separate claim.

The connected companies rule

Two or more companies are connected for Employment Allowance purposes if:

• One controls the other (directly or indirectly), or
• Both are under the control of the same person or persons.

Control is typically defined as owning more than 50% of the shares or voting rights.

Only one Employment Allowance claim is permitted per connected group. The group must nominate a single company to make the claim.

Strategy: nominate the company with the highest employer NI liability. If Company A has £8,000 employer NI and Company B has £15,000 employer NI, claiming through Company B saves the full £10,500 rather than only £8,000 through Company A.

Example group:

A holding company (Company H) owns 100% of Company A and 80% of Company B. All three are connected. One Employment Allowance of £10,500 is available for the group. They choose Company B (highest NI liability) to claim.

How to claim

Employment Allowance is claimed through your payroll software -- there is no separate HMRC form.

Steps to claim for 2026/27

1. Open your payroll software at the start of the tax year (or when you first become eligible during the year).
2. Select "Yes" to Employment Allowance in the employer settings.
3. Specify the reason you are eligible -- from April 2020, employers must confirm they are not an excluded employer. Most software will prompt this.
4. Submit an Employer Payment Summary (EPS) with the Employment Allowance indicator set to "Yes" via RTI (Real Time Information).
5. HMRC receives the EPS and records the claim.

Once the claim is active, the software automatically reduces each payroll run's employer NI liability until the £10,500 is fully offset.

Mid-year claims

If you forget to claim at the start of the year, you can claim mid-year. The credit is backdated to the start of the tax year and the cumulative employer NI already paid can be offset against future liabilities. You cannot receive a cash refund mid-year for overpaids -- but you can carry the balance forward or reclaim via EPS at year-end.

Reclaiming overpaid NI from previous years

Employment Allowance can be claimed retroactively for up to 4 previous tax years (i.e. back to 2022/23 in 2026/27). Use an amended EPS or contact HMRC directly to reclaim for prior years where you were eligible but did not claim.

Employment Allowance and the apprenticeship levy

The Employment Allowance and the Apprenticeship Levy are separate obligations:

• Employers with a payroll bill above £3 million pay 0.5% of total payroll as the Apprenticeship Levy.
• Employment Allowance reduces employer NI only -- it does not reduce the Apprenticeship Levy liability.
• However, if an employer's NI liability is below £100,000 (the Employment Allowance eligibility threshold), it is unlikely to also be paying the Apprenticeship Levy (which only kicks in above £3m payroll).

Interaction with employer NI threshold changes

From 6 April 2025, the employer NI secondary threshold dropped from £9,100 to £5,000 per employee per year. This increased employer NI bills for many small employers. The Employment Allowance rising to £10,500 (from £5,000) was introduced simultaneously to partially offset the impact.

For a small employer with 4 employees earning £25,000 each:

• Employer NI per employee: 15% x (£25,000 - £5,000) = £3,000.
• Total employer NI: £12,000.
• Employment Allowance: £10,500.
• Net employer NI: £12,000 - £10,500 = £1,500.

Without the Employment Allowance increase (at the old £5,000 rate), the net NI would be £7,000 -- the increase to £10,500 saved this employer £5,500.

Key facts summary

Sources

• HMRC: Employment Allowance
• HMRC: Check if you can claim Employment Allowance
• gov.uk: Employer NI rates and thresholds