Employment Allowance

Employment Allowance can reduce an eligible employer’s Class 1 National Insurance bill by up to £10,500 each tax year. It is not a cash grant. Instead, it reduces the employer’s National Insurance included in PAYE payments until the allowance is used or the tax year ends.

For 2026/27, employers normally pay National Insurance at 15% on earnings above the £5,000 Secondary Threshold. Checking eligibility should therefore be part of your payroll review.

Who can claim Employment Allowance?

Most businesses and charities paying employer’s Class 1 National Insurance can claim. Since April 2025, the previous restriction for employers with an annual employer National Insurance bill of £100,000 or more has been removed.

However, a limited company cannot claim if its only employee liable for employer National Insurance is also its sole director. Other exclusions include most domestic employees, businesses undertaking at least half their work in the public sector, and workers caught by the off-payroll working rules.

Can a company with two directors claim?

Yes. A company can normally claim where two directors are both paid above the £5,000 Secondary Threshold, even if it has no other employees. This includes husband-and-wife companies.

For example, if both directors receive salaries of £12,570 for the full year, employer National Insurance is £1,135.50 each: 15% of the £7,570 above the threshold. The company’s total employer National Insurance is therefore £2,271, which could be covered in full by Employment Allowance.

This does not mean every company should automatically pay directors £12,570. The appropriate salary depends on profits, other income and personal circumstances. Salary decisions should form part of wider business tax planning.

Other points to check

Connected companies can only claim one Employment Allowance between them. If an employer operates more than one PAYE scheme, the allowance can only be used against one scheme. It reduces employer’s Class 1 National Insurance, but not employees’ National Insurance or Class 1A liabilities on benefits in kind.

How is Employment Allowance claimed?

The claim is made through payroll software by submitting an Employer Payment Summary to HMRC. It must be claimed each tax year and is then set against employer National Insurance. Eligible businesses may also claim for the previous four tax years.

GMS Accountants provides limited-company and payroll support to businesses in Cambridge, Nottingham and throughout the UK. If you are unsure whether your company qualifies, get in touch for a review.