Employment Allowance
Employment Allowance lets eligible employers reduce their annual employer's National Insurance bill by up to £10,500. A company whose only employee is a single director paid above the secondary threshold cannot claim it.
How it works
Employer's National Insurance is charged at 15% on earnings above the secondary threshold of £5,000 a year. Employment Allowance offsets up to £10,500 of that bill each tax year. It is not a cash payment: it reduces the employer's National Insurance you pay over to HMRC month by month until it is used up.
The restriction that catches most owner-managed companies is the single-director rule. A company cannot claim if the only person paid above the secondary threshold during the year is a single director. Take on a second employee or pay a second director above the threshold, and the company can claim. This is why so many one-person companies set a salary carefully rather than defaulting to a round figure.
You claim through payroll software by ticking the eligibility indicator on the Employment Payment Summary. The claim does not roll forward automatically in every set-up, so it is worth confirming at the start of each tax year. Claims can be backdated up to four years if the company was eligible and did not claim.
Public authorities and companies doing more than half their work in the public sector are excluded, and connected companies get one allowance between them rather than one each.
Worked example (2026/27)
Company with a director and one employee
| Total employer's National Insurance for the year | £6,400 |
|---|---|
| Employment Allowance available | £10,500 |
| Employer's National Insurance actually paid | £0 |
| Unused allowance | Lost at the year end, not refunded |
Who this affects
- Single-director companies, which cannot claim while the director is the only person on the payroll
- Companies taking on their first employee part-way through a year
- Family companies paying a spouse a genuine wage for real work
- Groups of connected companies, which share one allowance
Common mistakes
- Claiming as a sole-director company and having to unwind it later
- Assuming the claim carries forward automatically each April
- Paying a second person below the secondary threshold and thinking it unlocks the claim
- Not backdating a claim for earlier years where the company was eligible
Frequently asked questions
How much is the Employment Allowance?
Up to £10,500 a year off the company's employer's National Insurance bill.
Can a single-director company claim it?
No, not while that director is the only employee paid above the secondary threshold of £5,000.
Can I backdate a claim?
Yes, up to four previous tax years where the company met the conditions and did not claim.
Does it reduce employee National Insurance too?
No. It only reduces the employer's secondary Class 1 contributions, not the employee's own deductions or income tax.
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Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
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