- Eligible employers can reduce their employer Class 1 National Insurance bill by up to £10,500 for the 2026/27 tax year.
- Employment Allowance must be claimed every tax year through payroll software by submitting an Employer Payment Summary to HMRC.
- Single-director companies with no other employees, most public bodies, and groups of connected companies above the NI threshold cannot claim.
Employment Allowance 2026 lets eligible UK employers reduce their annual employer Class 1 National Insurance bill by up to £10,500 for the 2026/27 tax year.
It is not paid as a refund. The saving is applied automatically against your NI liability as it falls due, once you tell HMRC you are claiming.
Most businesses, charities, and community amateur sports clubs with employer NI obligations can claim. The rules around connected companies, single-director firms, and public sector employers catch a lot of people out.
Sleek’s payroll management service handles the claim and the renewal for you each tax year.
What is Employment Allowance?
Employment Allowance is a government scheme that reduces the amount of employer Class 1 National Insurance contributions a business pays to HMRC. Introduced in 2014, it was designed to support smaller employers with the cost of taking on staff.
For the 2026/27 tax year, the allowance sits at £10,500. This is the same level set in April 2025, when the previous £100,000 NI liability cap on eligibility was removed.
The allowance is not a cash payment. It works by offsetting your employer NI bill each month or quarter until the full £10,500 has been used.
If your annual employer NI liability is less than £10,500, your saving is capped at whatever you actually owe.
How much is Employment Allowance for 2026/27?
The Employment Allowance for the 2026/27 tax year is £10,500 per business. This is the same rate that has applied since 6 April 2025, when the allowance more than doubled from the previous £5,000 cap.
The increase, combined with the removal of the £100,000 eligibility threshold, brought thousands more employers into scope.
Here’s a quick view of how the allowance has changed:
Tax year | Employment Allowance | Eligibility cap |
2023/24 | £5,000 | Employer NI under £100,000 |
2024/25 | £5,000 | Employer NI under £100,000 |
2025/26 | £10,500 | Cap removed |
2026/27 | £10,500 | Cap removed |
A practical example. If your business pays £18,000 in employer Class 1 NI over the tax year, Employment Allowance covers the first £10,500.
You would only pay £7,500 to HMRC across the year, not £18,000.
Who qualifies for Employment Allowance in 2026?
You qualify for Employment Allowance 2026 if you are a business, charity, or community amateur sports club that pays employer Class 1 National Insurance contributions on at least one employee’s earnings.
The eligibility test changed significantly in April 2025, opening the scheme up to mid-sized employers who were previously locked out by the £100,000 NI liability cap.
To claim, you must meet all of the following conditions:
- You are registered as an employer with HMRC and operate a PAYE scheme
- You pay employer Class 1 NI on at least one employee’s earnings during the tax year
- You are not a public body or carrying out more than half of your work in the public sector
- You are not a single-director limited company with no other employees paid above the secondary threshold
- Your claim, combined with other state aid, stays within de minimis limits if you operate in a sector that receives subsidies
The de minimis state aid rules only affect a small number of trading businesses. Most ordinary UK employers will not need to worry about this.
Who cannot claim Employment Allowance?
Several groups are excluded from Employment Allowance, even if they pay employer National Insurance. Knowing the exclusions upfront saves a wasted claim and an awkward correction later.
You cannot claim Employment Allowance if any of the following applies:
- You are the only director and only employee of a limited company paid above the secondary NI threshold
- More than half your work is done in the public sector, such as NHS contracts or local council services, unless you are a charity
- You employ someone for personal, household, or domestic work, such as a nanny, gardener, or au pair
- You are part of a group of connected companies and another company in the group is already claiming the allowance
- You pay workers through off-payroll working (IR35) rules and they are deemed employees of the client
The single-director rule trips up a lot of contractors and small consultancies. If you are the sole director and the only person on payroll, you cannot claim, even if you take a salary above the threshold.
The moment a second employee is paid above the secondary threshold during the tax year, eligibility opens up.
Connected companies and the Employment Allowance
If your business is part of a group of connected companies, only one company in the group can claim Employment Allowance in any given tax year. Companies are considered connected if one controls the other, or if they are both under the control of the same person or group.
The group must decide between themselves which entity will claim. HMRC does not split the allowance across multiple companies.
A worked example helps here. A parent company owns two trading subsidiaries. Subsidiary A has an employer NI bill of £14,000 and Subsidiary B has a bill of £4,500. The group is better off having Subsidiary A claim, because it can use the full £10,500 allowance, while Subsidiary B would only use £4,500 of it.
If you run multiple limited companies, review the employer NI position of each one before the tax year starts. Allocating the allowance to the company with the highest NI bill maximises the saving.
How to claim Employment Allowance in 2026
You claim Employment Allowance by submitting an Employer Payment Summary (EPS) to HMRC through your payroll software, marking the Employment Allowance indicator as “Yes”. The claim is made directly to HMRC, not through a separate application form or portal.
Follow these steps to claim:
- Check eligibility against the conditions above for the current tax year
- Open your payroll software and locate the Employment Allowance setting, usually found under company or PAYE settings
- Set the Employment Allowance indicator to “Yes” for the relevant tax year
- Confirm your de minimis state aid sector, if relevant, when prompted by the software
- Submit the next EPS to HMRC as part of your normal payroll cycle
- Check your HMRC online account within a few days to confirm the claim has been registered
Once the claim is submitted, your payroll software offsets the allowance against your employer Class 1 NI liability automatically. You do not need to take further action mid-year unless your eligibility changes.
If you do not use payroll software, you can claim using HMRC’s Basic PAYE Tools. Most employers find dedicated payroll outsourcing the simpler route.
Do I have to claim Employment Allowance every year?
Yes, Employment Allowance must be claimed every tax year. The claim does not roll over automatically, even if you claimed successfully in the previous year. A fresh EPS submission is needed each April when the new tax year starts.
This catches out a surprising number of employers. The most common mistake is assuming the allowance carries forward, then losing the saving for an entire tax year before realising the claim was never resubmitted.
Setting a reminder for early April, or using a payroll provider that handles renewals automatically, prevents the issue altogether.
Can I backdate an Employment Allowance claim?
You can backdate an Employment Allowance claim for up to four previous tax years if you were eligible at the time but did not claim. As of the 2026/27 tax year, that means you can still claim for 2022/23, 2023/24, 2024/25, and 2025/26 if you qualified.
Backdated claims are submitted through your payroll software using an EPS for the relevant historical year. HMRC will then either refund the overpaid NI or offset it against your current liability.
The amounts available for backdating are:
Tax year | Maximum allowance available |
2022/23 | £5,000 |
2023/24 | £5,000 |
2024/25 | £5,000 |
2025/26 | £10,500 |
A four-year backdated claim could be worth up to £25,500 in recovered NI for an eligible employer who has never claimed before. It is one of the most overlooked savings in UK payroll.
How Employment Allowance interacts with other payroll obligations
Employment Allowance only reduces your employer Class 1 NI. It does not affect employee NI deducted from wages, income tax under PAYE, or your obligation to file Real Time Information returns.
The allowance also does not reduce your bill for:
- Class 1A NI on benefits in kind reported via P11D
- Class 1B NI on PAYE Settlement Agreements
- Apprenticeship Levy contributions
- Employer pension contributions
Your wider cost of employing someone still includes pension auto-enrolment, statutory sick pay, holiday pay, and any benefits you offer. Employment Allowance is a useful saving, not a substitute for proper payroll budgeting.
How Sleek helps with Employment Allowance
Claiming Employment Allowance correctly each year, tracking connected company rules, and spotting backdated claims worth thousands of pounds are exactly the kind of details a busy employer does not have time to chase. Sleek’s payroll specialists handle the full claim, the annual renewal, and the eligibility check, so you never miss out on the £10,500 you are entitled to.
We also flag connected company issues during onboarding and review backdated claims for new clients as standard. The savings often pay for the service many times over.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
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FAQs on employment allowance
Can charities claim Employment Allowance if more than half their work is in the public sector?
Yes. Charities and community amateur sports clubs (CASCs) are exempt from the public sector exclusion that applies to ordinary businesses. A charity delivering NHS services or council contracts can still claim Employment Allowance for 2026/27, provided it meets the standard eligibility tests around being an employer and paying employer Class 1 NI on at least one employee.
Do I need to make a state aid declaration when claiming Employment Allowance?
Most businesses do not. The de minimis state aid rules only apply if you operate in a sector that receives government subsidies, such as agriculture, fisheries, or road haulage. If you do, you must confirm your total state aid from all sources stays under the relevant ceiling. HMRC’s further employer guidance on Employment Allowance explains exactly who is affected.
What happens if I claim Employment Allowance but become ineligible during the year?
You must stop the claim through your payroll software and repay any allowance you have already used. Common triggers include a single director becoming the only employee mid-year, or a connected company in your group claiming first. HMRC will collect the repayment through your next NI submission. Failure to correct an invalid claim can lead to penalties and interest.
Can I claim Employment Allowance for employing family members?
Yes, provided the family member is a genuine employee paid above the secondary NI threshold and not engaged in personal or household work. A spouse working in your business as a paid employee counts towards eligibility. Hiring a relative as a domestic worker, such as a nanny employed by the family directly, does not qualify because Employment Allowance excludes personal employment.
Does Employment Allowance reduce my Apprenticeship Levy bill?
No. Employment Allowance applies only to employer Class 1 National Insurance contributions. The Apprenticeship Levy, charged at 0.5% on annual pay bills above £3 million, is a separate liability and is not offset by the allowance. Likewise, Class 1A NI on benefits reported through P11D and Class 1B NI on PAYE Settlement Agreements remain payable in full.
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What if I take on my first employee partway through the tax year?
You can claim the full £10,500 Employment Allowance, not a pro-rated amount, as long as you meet eligibility at the point of claim. The allowance is annual and not split by month. Submit your EPS claim through payroll software as soon as you have processed your first payroll run, and the saving applies from that point forward.
Can a deemed employee under IR35 rules count for Employment Allowance?
No. Workers engaged through off-payroll working rules, often called IR35 deemed employees, are excluded from Employment Allowance calculations. The NI paid on their deemed earnings cannot be offset against the £10,500 allowance. If your business operates partly with off-payroll workers and partly with employees, only the genuine employee NI bill counts towards Employment Allowance eligibility and savings.
