Employment Allowance 2026/27: Cut £10,500 Off Employer NI
Quick answer
Eligible employers can knock £10,500 off employer NI in 2026/27. Eligibility rules, the single-director exclusion, worked examples and how to claim.
Quick answer: The Employment Allowance knocks up to £10,500 off an employer's National Insurance bill for 2026/27. Since employer NI is 15% of each employee's pay above £5,000 a year, the allowance effectively makes the first two or three modest salaries NI-free for a small business. Most employers qualify, including sole traders with staff and charities. The famous exception: a limited company whose only person paid above £5,000 is its sole director. Claiming takes one tick-box in payroll software, it is not automatic, and if you forgot in past years you can still claim back four of them.
All figures on this page are 2026/27 rates, checked against HMRC employer thresholds on 27 July 2026.
Who can get it, who cannot
| Employer | Eligible? | Why |
|---|---|---|
| Ltd company, 2+ people paid over £5,000 | Yes | Standard case, including two-director companies |
| Ltd company, sole director is the only one paid over £5,000 | No | The single-director exclusion |
| Sole trader or partnership employing staff | Yes | Business structure does not matter, employing does |
| Charity or community amateur sports club | Yes | Including those with large NI bills |
| Employer of a nanny, cleaner, gardener (domestic staff) | No | Personal employment excluded, unless employing a care/support worker |
| Business doing 50%+ public-sector work | Mostly no | Public-function work is excluded (NHS cleaning contracts etc.) |
| Company with a big payroll (£100k+ prior-year NI) | Yes, since April 2025 | The old £100,000 cap was abolished |
| Group of connected companies | One claim total | The group shares a single £10,500 and picks one PAYE scheme |
Key facts
| Fact | 2026/27 position |
|---|---|
| Maximum saving | £10,500 per employer per year (not per employee) |
| What it offsets | Employer (secondary) Class 1 NI only, 15% above £5,000/year per employee |
| What it never touches | Employee NI, Income Tax, pension contributions |
| How to claim | "Yes" to Employment Allowance in payroll (files an EPS to HMRC) |
| When to claim | Any time in the year; applies to the whole year's bill |
| Backdating | Up to 4 previous tax years |
| Unused balance | Not refunded, not carried forward |
How it works, step by step
- Payroll computes employer NI per employee: 15% of pay above £5,000 a year (£96.15/week).
- You (or your accountant) tick the Employment Allowance box once for the tax year; the software files an Employment Payment Summary (EPS).
- Each pay run, employer NI due is absorbed by the allowance until the £10,500 runs out; you simply pay HMRC less.
- After it runs out, normal employer NI resumes for the rest of the year.
- The saving shows in your HMRC business tax account within days of each EPS.
If this is you, do this (decision table)
| Situation | Meaning | Decision | Action |
|---|---|---|---|
| Employing staff, never checked the claim | You may be donating £10,500/year to HMRC | Check today | Payroll settings → Employment Allowance → "Yes", verify an EPS filed |
| Eligible in past years, never claimed | Refunds available | Backdate | Claim each of the last 4 years via EPS for those years |
| Sole director, no other staff | Excluded as things stand | Consider structure | If a partner/family member genuinely works in the business, paying them £5,000+ unlocks the allowance |
| Hiring your first employee | Allowance changes the maths | Recost the hire | A £30,000 hire's £3,750 employer NI is covered; budget salary + pension only |
| Two connected companies both claiming | Breach: one allowance per group | Fix before HMRC does | Unclaim one, repay, keep the claim on the bigger payroll |
| Payroll switched provider mid-year | Flag may have reset | Verify | Confirm the new system shows the claim and prior usage |
| De-registered/paused PAYE, restarting | Claim does not carry | Re-claim | Tick the box again in the new scheme's first EPS |
Real example 1: Sameera's bakery, four staff
Sameera employs a manager on £28,000 and three bakers on £24,000:
| Employee | Employer NI before allowance |
|---|---|
| Manager: (28,000 - 5,000) × 15% | £3,450.00 |
| 3 bakers: (24,000 - 5,000) × 15% each | £8,550.00 |
| Total employer NI | £12,000.00 |
| Employment Allowance | -£10,500.00 |
| Actually paid | £1,500.00 for the whole year |
Her effective employer NI rate this year: 1.9% instead of 15%. Cost out any new hire, with and without the allowance, using the payroll calculator.
Real example 2: Dan and Katie's ltd company (two directors, zero NI)
Dan and Katie run a design company and each take a £12,570 salary plus dividends. Employer NI per director: (12,570 - 5,000) × 15% = £1,135.50, so £2,271 total. Because TWO people are paid above £5,000, the single-director exclusion does not apply, and the Employment Allowance wipes the whole £2,271. That materially changes the optimal salary: without the allowance, many owner-directors cap salary at £5,000-£9,100 to dodge employer NI; with it, paying the full £12,570 is usually better because it is corporation-tax deductible and NI-free. Run both scenarios in the dividend vs salary calculator and the limited company tax calculator.
Real example 3: Ola, IT contractor, sole director (excluded, then not)
Ola's company pays only him, £12,570 salary: excluded, £1,135.50 employer NI payable. In 2026 his wife Bisi starts doing the company's bookkeeping and admin, genuinely, four hours a week, paid £6,000 a year. Now two people are paid above £5,000: the company claims the allowance and saves the employer NI on both salaries (£1,285.50 total). The work must be real and the pay defensible; HMRC can and does ask.
What claiming actually looks like
- Xero / QuickBooks / Sage / FreeAgent / Moneysoft: Payroll settings → HMRC/Employer settings → "Claim Employment Allowance" → select "Yes" and your business sector → the next EPS carries the claim.
- HMRC Basic PAYE Tools: select the employer → "Change employer details" → Employment Allowance indicator → "Yes" → send the EPS.
- Backdating: file an EPS for each earlier year (your software or accountant can do this); HMRC refunds or offsets what you overpaid.
- Keep the claim evidence: screenshot the setting and the EPS submission receipt.
How long things take
| Step | Typical timeline |
|---|---|
| Claim active after EPS | Next pay run |
| Visible in HMRC business tax account | A few days after the EPS |
| Backdated-year refunds | A few weeks, as refund or offset against current liabilities |
Action checklist
- Open payroll settings and read the Employment Allowance flag, today.
- Confirm eligibility against the table above (single-director and connected-company rules especially).
- Tick, file the EPS, and verify the reduced payment on the next pay run.
- Check the last four years; backdate any missed claims.
- Re-verify every April and after any payroll software change.
- Stacking savings: salary sacrifice pensions cut employer NI on top of the allowance; both sides of that saving are in the salary sacrifice calculator.
- Recalculate hiring costs: the National Insurance calculator shows the per-employee NI the allowance is absorbing.
Frequently asked questions
Is the Employment Allowance per employee or per company?
Per employer (or per connected group): one pot of £10,500 offsetting the total employer NI bill, however many staff you have.
Can a one-person limited company claim it?
Not while the sole director is the only person paid above £5,000 a year. Add one genuine employee or a second paid director above that line and the company qualifies from that year.
We forgot to claim for three years. Is that money gone?
No. You can claim for the previous four tax years by filing an EPS for each. For earlier years the allowance amounts were different (£5,000 before April 2025), and the refund reflects each year's cap.
Does it affect my employees' pay or pension?
Not at all. Their gross, tax, NI and pension are identical. The allowance only reduces what the employer hands HMRC on top of wages.
Do apprentices and under-21s count?
Employers already pay no NI for under-21s and apprentices under 25 (up to £50,270), so those employees do not generate liability for the allowance to offset; the allowance works against NI for your other staff.
Can I claim if I also get other help, like small business rates relief?
Yes, they are independent. The one interaction to check is de minimis state aid rules if your business operates in specific subsidised sectors (agriculture, fisheries, road freight); most service businesses are unaffected.
Sources
- GOV.UK: Employment Allowance (accessed 27 July 2026)
- GOV.UK: Rates and thresholds for employers 2026/27 (accessed 27 July 2026)
- GOV.UK: Employment Allowance eligibility (accessed 27 July 2026)
Written by
Laura Michelle Davis — Chartered Tax Adviser (CTA)
ACCA · CTA (Chartered Tax Adviser) · ATT · BSc Economics, UC Berkeley
Laura Michelle Davis is a Chartered Tax Adviser (CTA) who also holds the ACCA and ATT qualifications and a BSc in Economics from UC Berkeley. She specialises in UK personal tax, covering income tax, National Insurance, self-employment and capital gains, and has built her career making complicated rules easy to follow. At TaxFly, Laura writes and edits the tax guides and explainers, checking that figures reflect current HMRC rates and that every explanation answers the question a real person is actually asking. Her goal is plain-English clarity you can trust and act on.
