The £10,500 Employment Allowance Most Small Employers Forget to Claim
Employment costs remain a major pressure for UK businesses in 2026/27. Employer National Insurance is now charged at 15% for most employees above the relevant threshold.
However, eligible employers can reduce their employer National Insurance bill by up to £10,500 through this allowance. The relief can significantly reduce annual payroll costs for smaller employers.
The important point is that the relief is not automatic. Employers must check their eligibility and make a claim through payroll each tax year.
Key Takeaways
- Employment Allowance is worth up to £10,500 in 2026/27.
- It reduces employer Class 1 National Insurance contributions.
- The previous £100,000 employer NIC eligibility limit no longer applies.
- Sole-director companies can still face an important restriction.
What Is Employment Allowance?
Employment Allowance is a relief against an employer’s secondary Class 1 National Insurance liability. Eligible employers use the allowance through their PAYE payroll.
The relief reduces employer National Insurance each time payroll runs. It continues until the allowance is exhausted or the tax year ends.
The maximum benefit is £10,500, but employers cannot receive more than their qualifying NIC liability. A business with £6,000 of qualifying employer NIC would, therefore, save £6,000.
Why It Matters in 2026/27
The standard employer National Insurance rate is 15% in 2026/27. The annual Secondary Threshold remains £5,000 for standard employees.
This means employer NIC can become significant even for businesses with relatively modest salaries. This relief can offset much of that cost for eligible employers.
|
2026/27 measure |
Amount |
|
Employment Allowance |
£10,500 |
|
Standard employer NIC rate |
15% |
|
Annual Secondary Threshold |
£5,000 |
|
Monthly Secondary Threshold |
£417 |
|
Weekly Secondary Threshold |
£96 |
(Source: HMRC: 2026/27 employer National Insurance rates)
The increase to £10,500 originally took effect from 6 April 2025. The same legislation removed the previous £100,000 eligibility threshold.
Those changes were introduced by the National Insurance Contributions (Secondary Class 1 Contributions) Act 2025.
Who Can Claim Employment Allowance?
Most businesses and charities can claim if they incur qualifying secondary Class 1 National Insurance contributions.
This can include limited companies, partnerships and sole traders that employ staff. Community amateur sports clubs can also qualify.
The old rule restricting claims where the previous year’s employer NIC exceeded £100,000 no longer applies. That restriction was removed from 6 April 2025. However, employers must still satisfy the remaining eligibility conditions.
(Source: HMRC: Check Employment Allowance eligibility)
Who Cannot Claim?
This relief has several important exclusions.
You generally cannot claim against liabilities relating to:
• A director who is the only qualifying employee of their company.
• Workers covered by certain IR35 off-payroll rules.
• Personal or domestic employees, except qualifying care or support workers.
• Certain public-sector activities.
• Another connected company where one group company already claims it.
Businesses with more than one PAYE scheme also cannot claim £10,500 against every scheme. The allowance can only apply against one payroll.
(Source: HMRC: Employment Allowance exclusions)
The Sole-Director Company Rule
The sole-director restriction causes many incorrect claims. A company cannot normally claim that one director is its only employee liable for employer Class 1 National Insurance.
Having another employee does not automatically solve the problem. That employee must also create a qualifying secondary Class 1 NIC liability.
For example, consider a company with one director and one low-paid employee. If only the director creates employer NIC, the company might remain ineligible. The position can change during the tax year. A qualifying additional employee can allow the company to become eligible.
(Source: HMRC: Single-director Employment Allowance guidance)
How Much Can You Save?
The saving depends on your actual qualifying employer NIC liability. For standard employees, employer NIC is generally calculated at 15% above the £5,000 annual Secondary Threshold.
Consider an employee earning £25,000 during 2026/27.
The employer NIC would be approximately:
£25,000 − £5,000 = £20,000
£20,000 × 15% = £3,000
Employees under 21, qualifying apprentices and certain veterans can have different employer NIC rules. Employers should therefore use actual payroll calculations before forecasting their savings.
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How to Claim Employment Allowance
This relief is claimed through payroll rather than a separate tax return. Most businesses can claim through their payroll software.
Check your eligibility
Confirm that your business meets the conditions before submitting anything. Check directors, employees, connected companies and any excluded workers.
Select Employment Allowance
Your payroll software should include an Employment Allowance option. Choose “Yes” for the allowance indicator.
Submit an EPS
The claim is reported to HMRC using an Employer Payment Summary, commonly called an EPS. Your normal payroll and full payment submission process continues.
Reduce the PAYE payment
Once the claim applies, it reduces the qualifying employer’s NIC. Continue reducing the liability until the available allowance is used. HMRC provides the full claiming process on their website.
Connected Companies
Connected companies cannot each claim their own £10,500 relief. Where companies are connected at the beginning of the tax year, only one can normally claim. The companies must decide which business will use the allowance.
Connection can arise where one company controls another. It can also arise where the same person controls several companies. This rule often affects business owners operating several limited companies.
(Source: HMRC: Employment Allowance and connected companies)
Common Mistakes to Avoid
Several errors appear regularly in small-business payrolls.
Assuming the allowance renews automatically
A new claim is required each tax year. Make the eligibility check part of your payroll year-end process.
Claiming for a sole director
A company can fail the eligibility test when the director creates the only employer NIC liability. Review employee earnings before claiming.
Claiming through several companies
Connected companies cannot each claim a separate allowance. Check ownership and control across the business group first.
Claiming against several PAYE schemes
An employer with several payrolls can only use this relief against one scheme. Choose the appropriate PAYE reference before submitting the claim.
Assuming £10,500 means a cash refund
The £10,500 figure is a maximum allowance. You cannot receive more relief than your qualifying employer NIC liability.
Forgetting to reconcile payroll
Payroll software, HMRC liabilities and accounting records should agree. Regular bookkeeping can help identify PAYE differences before year-end.
Employment Allowance Checklist
Before claiming for 2026/27, check the following:
• Does the business pay qualifying employer Class 1 National Insurance?
• Is the company affected by the sole-director restriction?
• Does another connected company already claim?
• Are any workers excluded under HMRC rules?
• Has the allowance been assigned to only one PAYE scheme?
• Has the Employment Allowance indicator been submitted through an EPS?
• Does the payroll liability agree with HMRC’s PAYE account?
• Has eligibility been checked again for the new tax year?
A short review can prevent both missed relief and incorrect claims.
Conclusion
Employment Allowance can reduce employer National Insurance by up to £10,500 in 2026/27. For many small employers, that can remove a substantial part of their annual payroll NIC cost.
The main risks come from assuming eligibility without checking the rules. Sole-director companies and connected businesses need particular attention.
Employers should review their eligibility for the relief at the start of every tax year. Payroll records should also remain reconciled with HMRC throughout the year.
If your eligibility is unclear, professional payroll advice can help confirm the position before a claim is submitted.
