Written and reviewed by James Whitfield · Updated for 2026/27 · Editorial standards · Methodology
Employment Allowance reduces employer National Insurance by up to £10,500 in 2026/27. Most small limited companies can claim it, but sole director companies usually cannot. This guide explains the rules and how to claim.
Employment Allowance is a reduction in employer National Insurance contributions available to most UK businesses. For 2026/27, the allowance is £10,500. If your employer NI bill is less than £10,500, the full amount is offset and you pay no employer NI. If it exceeds £10,500, the bill is reduced by £10,500.
The allowance applies to employer Class 1 National Insurance only. It does not reduce employee NI, income tax, or corporation tax. It is claimed through your payroll software when you run payroll — you mark yourself as eligible and the offset is applied automatically through RTI reporting to HMRC.
Employment Allowance was increased significantly in recent years, making it more impactful for small businesses taking on their first or second employee. For a company paying one or two employees at moderate salaries, the allowance can eliminate the employer NI bill entirely.
This is the most commonly misunderstood aspect of Employment Allowance. You cannot claim it if your company has only one employee who is also a director. This means the typical setup for a one-person limited company — a sole director taking a salary and no other employees — does not qualify.
The exclusion exists because a sole director/employee is treated differently from an employer taking on staff. HMRC's view is that the allowance is designed to reduce the employment cost of hiring workers, not to reduce the NI cost of a director paying themselves.
Once you take on a second employee (whether full-time, part-time or casual), the exclusion no longer applies and you can claim the allowance against your total employer NI bill. Even a part-time employee on a modest salary can unlock the allowance for the rest of the payroll.
From 2025/26 onwards, the £100,000 employer NI threshold for eligibility was removed. Previously, companies with an employer NI bill above £100,000 in the prior year were excluded. This restriction has been lifted, so larger businesses can now claim.
You cannot claim Employment Allowance if you are a public body (local authority, government department etc.) or if more than half your work is for the public sector. Most private limited companies are unaffected by this restriction.
You also cannot claim Employment Allowance in respect of a worker whose earnings are subject to off-payroll working (IR35) rules if that worker is deemed an employee for tax purposes of your company. This is a specific exclusion and most small companies are not affected.
You claim Employment Allowance by marking your payroll as eligible in your payroll software and submitting through Real Time Information. You do not need to contact HMRC separately. The offset is applied month by month until the £10,500 allowance is used up or the tax year ends.
For a small employer paying two employees at £30,000 each: employer NI at 15% on £25,000 above the threshold each = £3,750 per employee, total £7,500. With Employment Allowance of £10,500, the entire £7,500 employer NI bill is offset. Net saving: £7,500, and the allowance is not fully used.
For a larger payroll with higher employer NI, the full £10,500 allowance reduces the bill by that amount. At the 19% small profits rate, a £10,500 reduction in employer NI (which is an allowable expense) also saves approximately £2,000 in corporation tax that would otherwise have been paid on that employer NI deduction — wait, actually the employer NI is already deductible regardless, so the Employment Allowance purely reduces the NI bill itself.
No. If your company has only one employee who is also a director, you cannot claim Employment Allowance. You become eligible once a second employee joins the payroll, regardless of their hours or salary.
£10,500 per tax year. This is the maximum reduction in employer National Insurance contributions that eligible businesses can claim.
Through your payroll software when submitting Real Time Information (RTI) to HMRC. Mark yourself as eligible and the offset is applied automatically throughout the year.
Not directly. It reduces the employer NI bill. Employer NI is already an allowable expense, so it was reducing corporation tax anyway. Employment Allowance simply means you pay less NI, not that you get an additional deduction.