Employment Allowance explained: Do you qualify and how much can you claim?

Every time you run payroll, you may have to pay employer National Insurance contributions (NICs) on your employees' earnings. For eligible employers, Employment Allowance can reduce this cost by up to £10,500 a year.

Employment Allowance is a UK government relief that allows eligible employers to reduce their secondary Class 1 National Insurance liability. It is claimed through the employer's payroll and offsets the amount of employer NICs that would otherwise be payable to HMRC. (GOV.UK)

For the 2026/27 tax year, the maximum Employment Allowance is £10,500.

It is not a payment that HMRC sends to your business. Instead, the allowance is set against your employer Class 1 NIC liability as you run payroll.

If your eligible employer NIC liability for the year is £8,000, for example, Employment Allowance can reduce that liability to zero. If your liability is £15,000, the allowance can reduce it to £4,500.

The allowance is available to the employer, not to individual employees, and you need to make a new claim for each tax year.

Who can claim Employment Allowance?

Most employers that pay secondary Class 1 NICs can claim Employment Allowance, provided they meet the eligibility conditions.

You can generally claim if you are:

• A business that employs people

• A charity

• A Community Amateur Sports Club

• An employer of a qualifying care or support worker

From April 2025, the previous £100,000 limit on employer Class 1 NIC liability was removed. This means eligible employers with more than £100,000 of employer NIC liability can now claim Employment Allowance. (GOV.UK)

There are still specific rules for public bodies, single-director companies, connected companies, and certain types of workers.

How much is Employment Allowance for 2026/27?

For the 2026/27 tax year, Employment Allowance is up to £10,500. (GOV.UK)

The allowance increased from £5,000 to £10,500 from April 2025.

The £10,500 figure is the maximum available. The amount your business actually uses depends on its eligible employer Class 1 NIC liability.

If your liability is less than £10,500, you can use the allowance to reduce that liability, but you cannot simply claim the difference as a cash payment.

How does Employment Allowance work?

Employment Allowance is applied against your employer's secondary Class 1 NIC liability as you process payroll.

For example, suppose your business has an employer Class 1 NIC liability of £14,000 during the 2026/27 tax year.

The first £10,500 of eligible employer NIC liability is covered by the allowance, leaving £3,500 to pay.

If your employer NIC liability is £7,000, the allowance can reduce the liability to zero. The remaining £3,500 of the £10,500 allowance is not automatically paid to the business.

The allowance continues to be applied until the maximum has been used or the tax year ends, whichever happens first. (GOV.UK)

Can a company with one director claim Employment Allowance?  

A company with only one director can claim Employment Allowance, but there is an important condition.

If the company has only one director, that director must not be the only employee who is liable for secondary Class 1 NICs. (GOV.UK)

For example, if a limited company has one director who is also its only employee and the director is the only person generating secondary Class 1 NIC liability, the company cannot claim Employment Allowance.

If the company employs another person who is liable for secondary Class 1 NICs, it may qualify, subject to the other eligibility conditions.

This is particularly relevant to small UK limited companies where the director is the only person on the payroll.

Who cannot claim Employment Allowance?

Some employers are excluded from claiming Employment Allowance.

You generally cannot claim if:

• Your business is a public body or performs more than half of its work in the public sector, unless a specific exception applies

• Your company has only one director and that director is the only employee liable for secondary Class 1 NICs

• You are claiming for earnings that fall within the relevant IR35 off-payroll working rules

• You employ someone for personal, household, or domestic work, such as a nanny or gardener, unless they are a qualifying care or support worker

Charities and certain employers of care or support workers have specific rules that can allow them to claim. (GOV.UK)

If you are unsure whether your business qualifies, check the current HMRC eligibility rules before making a claim.

What if your business is part of a group?

If your company is connected to other companies, you cannot make a separate Employment Allowance claim for every company in the group.

Where companies are connected, only one company in the group can claim Employment Allowance for the tax year. The companies need to decide which company will make the claim. (GOV.UK)

This can affect businesses with:

• Parent and subsidiary companies

• Multiple companies controlled by the same owners

• Several businesses operating under a common group structure

The connected-company rules can be complex, so businesses with multiple entities should check their position before making a claim.

Can you claim Employment Allowance for more than one PAYE scheme?

No. If your business operates multiple PAYE schemes, you can only claim Employment Allowance against one PAYE scheme for the tax year. (GOV.UK)

For example, if your business operates separate PAYE schemes for different locations, you cannot claim £10,500 against each scheme.

You should nominate the PAYE scheme against which you want the allowance to be used.

Choosing the scheme where you expect the highest employer Class 1 NIC liability can help you use the allowance efficiently.

What National Insurance does Employment Allowance cover?

Employment Allowance is used against secondary Class 1 NICs paid by the employer.

It does not reduce the National Insurance contributions deducted from employees' salaries.

It also does not function as a general payroll tax credit that can be used against every amount owed to HMRC.

The allowance is specifically connected to eligible employer Class 1 NIC liability.

This distinction is important when reviewing payroll costs because the employee's NIC deduction and the employer's NIC liability are separate calculations.

How do you claim Employment Allowance?

Employment Allowance is claimed through your payroll process.

If you use commercial payroll software, you can generally claim by selecting the Employment Allowance indicator and submitting an Employer Payment Summary (EPS) to HMRC. (GOV.UK)

The process is straightforward:

1. Check that your business is eligible.

2. Select the Employment Allowance option in your payroll software.

3. Submit an EPS to HMRC with the Employment Allowance indicator set to "Yes".

4. Continue processing payroll as normal.

5. The allowance is applied against eligible employer Class 1 NIC liability.

You can also use HMRC's Basic PAYE Tools if your payroll software does not support the required EPS functionality. (GOV.UK)

When should you claim Employment Allowance?

You can claim Employment Allowance at any point during the tax year, but claiming earlier means you can start using the allowance sooner. (GOV.UK)

Employment Allowance does not automatically carry forward from one tax year to the next. You need to make a new claim each year.

For example, if you claimed Employment Allowance during 2025/26, you still need to make a new claim for 2026/27.

If you make a claim late and have already paid employer NICs that could have been covered by the allowance, HMRC can apply any unused allowance to other amounts you owe or, where appropriate, arrange a refund. (GOV.UK)

Can you claim Employment Allowance retrospectively?

Yes. Eligible employers can claim Employment Allowance for previous tax years, subject to the rules that applied during those years.

HMRC currently allows claims for the previous four tax years. (GOV.UK)

The eligibility rules changed from April 2025. For claims covering 2025/26 and later, there is no longer a £100,000 limit on employer Class 1 NIC liability.

For earlier years, the previous eligibility rules still apply.

If your business did not claim Employment Allowance in a previous year, it may be worth reviewing your payroll records to check whether you were eligible.

What changed from April 2025?

Employment Allowance became significantly more valuable from 6 April 2025.

Two important changes were introduced:

The allowance increased: The maximum Employment Allowance increased from £5,000 to £10,500.

The £100,000 restriction was removed: Employers are no longer prevented from claiming Employment Allowance because their employer Class 1 NIC liability was £100,000 or more in the previous tax year. (GOV.UK)

This means more UK employers can benefit from the allowance, including businesses with significantly higher payroll costs.

What happens when you reach the £10,500 limit?

Once your business has used the full £10,500 Employment Allowance, you continue paying employer Class 1 NICs as normal.

Reaching the limit does not mean you have become ineligible for Employment Allowance. HMRC specifically states that you should not stop your claim simply because you have reached the £10,500 limit. (GOV.UK)

The claim remains in place for the tax year, and the allowance will simply stop reducing your employer NIC liability once the maximum has been used.

What if your employer NIC liability is less than £10,500?

If your total eligible employer Class 1 NIC liability is less than £10,500, you can use Employment Allowance to reduce that liability.

For example, if your employer NIC liability is £6,500:

You do not receive the remaining £4,000 simply because you did not use the full allowance against employer NICs.

If you have unused allowance at the end of the tax year, HMRC has rules for using it against certain other liabilities or receiving a refund in qualifying circumstances. (GOV.UK)

Common Employment Allowance mistakes

Employment Allowance can reduce payroll costs, but employers need to make sure they are making the claim correctly.

Common mistakes include:

• Assuming every employer automatically qualifies

• Forgetting to make a new claim for the new tax year

• Claiming Employment Allowance against more than one PAYE scheme

• Making separate claims for connected companies

• Assuming a one-director company automatically qualifies

• Confusing employer Class 1 NICs with employee NIC deductions

• Stopping the claim simply because the £10,500 limit has been reached

• Continuing to claim after becoming ineligible

• Failing to update the claim when the business structure changes

A regular eligibility check can help prevent incorrect claims and payroll adjustments later.

How payroll software simplifies Employment Allowance

Employment Allowance is part of the wider payroll process, so managing it alongside your PAYE and National Insurance calculations can make payroll administration easier.

Payroll software can calculate employer NICs, apply the Employment Allowance against eligible liabilities, track the allowance used during the year, and include the Employment Allowance indicator in the relevant EPS submission.

This means payroll teams do not have to manually calculate the allowance after every pay run or maintain a separate spreadsheet to track how much remains.

It also keeps Employment Allowance connected to the rest of the payroll process, making it easier to manage employee pay, PAYE, National Insurance, and HMRC submissions in one place.

What's next?

Employment Allowance can make a significant difference to the cost of employing people. With up to £10,500 available for the 2026/27 tax year, eligible UK employers should make sure they understand the rules and claim the allowance through their payroll. (GOV.UK)

The removal of the previous £100,000 eligibility restriction also means that businesses that could not claim in earlier years may now qualify.

Employment Allowance checklist:

• Check whether your business is eligible for Employment Allowance

• Check whether your company has a single director and whether the director is the only employee liable for secondary Class 1 NICs

• Check whether your business is connected to other companies or charities

• If you have multiple PAYE schemes, choose the scheme against which you will claim

• Make a new Employment Allowance claim for the 2026/27 tax year

• Submit the relevant EPS to HMRC

• Monitor how much of the £10,500 allowance has been used

• Review your eligibility if your business structure changes

• Keep records supporting your claim

Conclusion

Zoho Payroll helps UK employers manage PAYE, National Insurance calculations, RTI submissions, and payroll processing, making it easier to manage Employment Allowance as part of your regular payroll workflow.