Employment Allowance Explained

Who this guide is for: For UK limited-company directors, small employers and finance helpers who need a plain-English eligibility and claiming overview — not a payroll software walkthrough or eligibility decision from Sorvuna.

Employment Allowance lets an eligible employer reduce its annual bill for employer Class 1 National Insurance — the National Insurance the employer pays on certain employee earnings. It is not a cash grant paid into the business bank account, and it is not a Corporation Tax relief in its own right.

Each time payroll runs, qualifying software usually offsets the allowance against that period's employer National Insurance until the annual maximum is used or the tax year ends on 5 April — whichever comes first.

Employer National Insurance is a company cost. Employee National Insurance is a separate deduction from the worker's pay. Employment Allowance only helps with the employer side. It does not cut the employee's National Insurance line on the payslip, and it does not directly raise their gross salary.

If the year's qualifying employer National Insurance is below the maximum allowance, only the amount needed is used. The rest is unused for that tax year — it does not roll into the next year.

For how employer National Insurance is built before any allowance, see Employer National Insurance Explained.

For the 2026/27 tax year (6 April 2026 to 5 April 2027), the maximum Employment Allowance is £10,500. Official employer threshold tables confirm the same figure.

From 6 April 2025, two important changes took effect for claims relating to tax years from 2025/26 onwards:

• the annual maximum rose from £5,000 to £10,500
• the former rule that blocked employers with £100,000 or more of secondary Class 1 National Insurance in the previous tax year was removed, along with the associated de minimis state-aid restrictions that sat with that cap

Claims for earlier tax years can still follow older eligibility and state-aid questions in HMRC tools. This guide focuses on the current position for 2026/27.

In broad terms, a business or charity can claim Employment Allowance for the current tax year when it is eligible under GOV.UK rules and has qualifying employer Class 1 National Insurance to offset.

Common situations that can qualify include:

• employers with employees paid above the Secondary Threshold
• limited companies with more than one director or employee creating employer National Insurance (see the single-director section)
• charities, including community amateur sports clubs
• some public bodies, but only where less than half of the work is in the public sector
• employers of a care or support worker in some personal or domestic arrangements that would otherwise be excluded

You normally claim against one PAYE scheme only. If you run more than one payroll, you cannot spread the same year's allowance across every scheme.

This is the rule that catches many owner-managed companies. A limited company cannot claim Employment Allowance if it has just one director and that director is the only employee liable for secondary Class 1 National Insurance.

In practice, liability for secondary Class 1 National Insurance usually means pay above the Secondary Threshold — currently £5,000 a year for 2026/27 (pro-rated for weekly or monthly pay periods). Directors normally use an annual earnings period.

It is not enough to say "single-director companies never qualify":

HMRC's further guidance also explains mid-year changes. Becoming eligible later in the tax year can open the allowance for that whole tax year. Losing the second qualifying earner later does not always force you to stop mid-year — though you may need to stop for the following year. Those timing rules are fact-sensitive; use the official single-director guidance before deciding.

Connected companies (and connected charities) are businesses linked by control or ownership for Employment Allowance purposes. If entities are connected, only one of them can claim the allowance for the tax year.

Choose which company claims and keep evidence of that choice. Complex groups should follow HMRC connected-entity guidance rather than this overview. The detailed legal tests for control are outside this guide.

You claim through payroll, not through a separate cash application.

1. Confirm eligibility for the tax year you are claiming.
2. In your payroll software, set the Employment Allowance indicator to Yes on an Employer Payment Summary (EPS) — the payroll submission used for items such as this claim.
3. Send the EPS to HMRC. Software then reduces qualifying employer Class 1 National Insurance as pay runs continue.
4. Claim again for each tax year you remain eligible.

If you stop being eligible, set the indicator to No on a later EPS. Do not select No only because you have already used the full £10,500 before the year ends, and do not select No only because you have temporarily stopped employing staff before 5 April — GOV.UK explains those cases separately.

Stopping a claim before 5 April can remove allowance already given in that tax year, so any employer National Insurance then due must be paid. Use HMRC's Basic PAYE Tools if your software cannot send the Employment Allowance indicator.

These examples show only the arithmetic of the annual offset. They assume the employer is eligible for the whole of 2026/27. They do not prove eligibility.

Compare director pay with or without Employment Allowance Use the Director Salary and Dividend Calculator →

Employment Allowance reduces qualifying employer National Insurance. Lower employer National Insurance can mean lower deductible employment costs, which can change taxable company profit. That is an accounting-and-Corporation-Tax consequence of a smaller employer National Insurance bill — not a separate Corporation Tax relief called Employment Allowance.

For company tax on accounting profit, use the Corporation Tax Calculator and Corporation Tax Explained. For salary, dividends and an optional Employment Allowance offset together, stay with the Director Salary and Dividend Calculator.