Eligible employers can take up to £10,500 off their employer National Insurance bill in the 2026 to 2027 tax year, unchanged from last year, according to GOV.UK’s Employment Allowance guidance. It isn’t applied automatically, it’s off-limits where a sole director is the only person paid above the employer NI threshold, and backdated claims for 2022 to 2023 close on 5 April 2027.
Employment Allowance 2026/27 in figures:
- Worth up to £10,500 a year against employers’ Class 1 National Insurance, up from £5,000 before April 2025.
- Open to employers of any size for current-year claims, since the £100,000 liability cap went in April 2025.
- Not available to a limited company whose only staff member paid above the employer NI threshold is a director.
- Backdating reaches four tax years, so 2022 to 2023 drops out of reach after 5 April 2027.
Employment Allowance 2026/27 covers more payroll than before
HMRC’s published rates and thresholds for 2026 to 2027 confirm the allowance at £10,500. That’s more than double the £5,000 that applied up to 5 April 2025, making it a markedly bigger employer National Insurance relief than it was two years ago.
It’s set against employers’ secondary Class 1 contributions only, not income tax or the National Insurance taken from staff pay. The reduction comes off each payroll run until the £10,500 is used up or the tax year ends.
Employer contributions are charged at 15% above a secondary threshold of £5,000 a year in 2026 to 2027, applied per pay period as £96 a week or £417 a month. At that rate, the full allowance covers the employer charge on £70,000 of pay above the threshold.
Pay for under-21s and certain apprentices under 25 is zero-rated up to an upper limit, so it doesn’t draw on the allowance.
April 2025 also scrapped the £100,000 test, which had shut out employers whose employer Class 1 bill in the previous tax year reached that level. Larger employers have been able to claim from the 2025 to 2026 tax year onwards.
The £10,500 is a ceiling rather than a payment. A business owing less than that can still claim, but the gap between its bill and the full allowance can’t be taken as a refund.
Where a late claim leaves allowance unused against payroll, HMRC’s guidance says the balance can go against other tax owed, or be repaid if nothing is outstanding.
The director rule that shuts out one-person companies
A limited company can’t claim where its only employee liable for employer contributions is a sole director, according to HMRC’s further guidance on single-director companies.
A director paid above the threshold, with nobody else on the payroll above it, sits squarely inside the exclusion.
The test turns on pay rather than headcount. Hiring staff doesn’t help if they’re all paid below the threshold, because the director is still the only one above it.
Eligibility opens once more than one employee or director is paid above the threshold, and HMRC calls the extra person’s pay “the decisive factor”. A second director on the books changes nothing unless they’re paid above it too, while a company whose two directors both clear it can qualify for the whole year.
Directors are measured against the annual threshold, pro-rated if they’re appointed partway through a year, while other staff are measured in each pay period.
If the director ends up as the sole person above the threshold during the year, the company can keep that year’s allowance but should stop claiming from the next. The rule applies to limited companies only, so sole traders with staff aren’t caught by it.
The other exclusions, and their exceptions
Within a connected group of companies or charities, just one member can make the claim. Employers with several PAYE schemes have to nominate a single scheme for the allowance.
Some earnings don’t count towards it at all. Pay caught by the IR35 off-payroll working rules is excluded, as is pay for domestic roles like a nanny or gardener, though employers of care and support workers can claim.
Businesses and public bodies are excluded if more than half their work is in the public sector, though charities can claim, community amateur sports clubs included.
In some cases the allowance is treated as de minimis state aid, which is capped by sector over three years. GOV.UK says the limits are likely to apply to a business based in Northern Ireland that makes or sells goods or wholesale electricity.
Backdating reaches four years, on each year’s terms
Employers that were eligible but didn’t claim can go back four tax years. In the 2026 to 2027 tax year that window starts at 2022 to 2023, and HMRC’s claiming guidance gives 5 April 2027 as the last date for that year.
Each backdated year carries the rules in force at the time. The allowance was £5,000 a year for 2022 to 2023, 2023 to 2024 and 2024 to 2025. Claims for those years also need the previous year’s employer Class 1 bill to have been under £100,000, counting every payroll but leaving out NI on off-payroll deemed payments.
Claims for 2025 to 2026 use the £10,500 figure with no liability limit. Added together, the four open years come to a theoretical maximum of £25,500, though each year is limited to what the employer actually owed.
What £10,500 is worth on a real payroll
Two illustrative examples show how the ceiling works, assuming an eligible employer, standard category A staff and no other reliefs. They’re worked on annual pay; payroll calculates per pay period, so real figures can differ by about a pound per employee a year.
A business with 10 staff each paid £30,000 has £25,000 of every salary above the threshold. At 15%, that’s £3,750 per employee and £37,500 in total, which the allowance would cut to £27,000.
A smaller firm with five part-time staff on £11,000 each owes £900 per person, or £4,500 altogether. The allowance would clear that bill entirely, and the £6,000 left over isn’t paid out.
How to claim Employment Allowance and stay eligible
If you run a payroll, the claim itself is a single field, though it has to be made again every tax year.
Steps to claim
- Check you qualify first. Work through the Employment Allowance eligibility rules on GOV.UK, paying particular attention to the director test, and check with an accountant or HMRC before claiming or backdating if your position isn’t clear-cut.
- Set the indicator. Payroll software users claim by setting the Employment Allowance indicator to ‘Yes’ on the next Employer Payment Summary (EPS) they send. If your software has no such field, HMRC’s Basic PAYE Tools can be used instead, and UK’s claim instructions cover both routes.
- Claim again each tax year. HMRC requires a fresh claim for each new tax year, and claiming early in the year means the reduction starts sooner.
- Backdate Employment Allowance for missed years. Earlier years go through the same EPS route, with a separate EPS for each year. You’ll be asked whether de minimis state aid rules apply and, if they do, to choose your business sectors.
- Leave the claim switched on. Reaching the £10,500 limit, or no longer employing anyone, isn’t a reason to select ‘No’. Stopping a claim before 5 April removes the allowance already given for that year.
- Track what you’ve used. Your HMRC online account shows how much of the allowance has gone.
For how directors’ pay and National Insurance fit together more widely, the company directors guide on Tax Rebate Services covers the detail.
Written by:
Tax Rebate Services Editorial Team
Reviewed by:
Tony Shanks
,
qualified Taxation Technician (ATT)
Last updated:
This article provides general information and is correct as at the date shown. It isn't personalised tax advice — for help with your own circumstances, speak to a qualified adviser or HMRC.
