UK Employment Allowance: Eligibility, Amount, and How to Claim

The UK Employment Allowance lets eligible employers cut up to £10,500 from their employer (secondary) Class 1 National Insurance bill in the 2026 to 2027 tax year. It works as a running credit against what you owe HMRC each pay period, not a refund at year end. Since 6 April 2025 the previous £100,000 NIC threshold has gone, so the size of your payroll no longer keeps you out.

How Much the Allowance Is Worth

The maximum for 2026 to 2027 is £10,500 off employer Class 1 NICs.¹ The credit reduces your liability each time you run payroll until it is used up or the tax year ends. If your total employer NICs for the year come to less than £10,500, that element of your payroll tax is simply nil.

Before 6 April 2025 the allowance was £5,000, and only employers whose secondary Class 1 NIC bill in the previous year stayed below £100,000 could claim. Both restrictions have gone.²

Who Can Claim

You can claim if you are a business or public body (including sole traders, partnerships, and limited companies) and less than half your work is in the public sector, such as contracted work for local councils or NHS services.³

Charities and Community Amateur Sports Clubs can claim without meeting the public-sector work test. Employing a care or support worker for someone with a physical or mental disability also qualifies, even where the arrangement would otherwise count as domestic employment.³

Who Cannot Claim

Several groups are shut out even where the basic tests are met.

Single-Director Companies With No Other Employees

If your limited company has one director and that director is the only person triggering employer NICs, you cannot claim. Hire a second employee who takes you over the secondary threshold and the restriction falls away.³

Domestic and Household Staff

Wages for personal or household workers, such as a nanny or gardener, do not count. Care and support workers are the exception.³

Off-Payroll Workers Caught by IR35

Employer NICs paid on workers inside the off-payroll working rules cannot be included in your claim.³ If you engage contractors through your own payroll under IR35, budget for those NICs separately.

Managed Service Companies

A managed service company cannot claim against deemed payments of employment income, but it can still claim against employer Class 1 NICs on wages paid to actual employees.⁴

Connected Companies, Charities and Multiple PAYE Schemes

A group of associated businesses gets one allowance between them, not one each. If one company controls another, or the same person controls both, HMRC treats them as connected, and the group picks a single company to claim for the year.⁵

Control here means the ability to direct how a company’s affairs are run, whether by holding most of the shares, holding most of the voting rights, or through powers in the articles of association. Where several people together hold that level of control, the companies still count as connected.⁶

The single-claim rule also applies where one employer runs more than one PAYE scheme. Pick one scheme and leave the others out.⁵

For charities the test is narrower. Two charities are connected only if their purposes and activities are the same or substantially similar and they are controlled by the same or related persons. Genuinely different charities under common trusteeship can each claim.⁷

De Minimis State Aid Limits

In certain sectors the allowance counts as state aid, and there is a cap on how much aid you can receive over a rolling three-year period, expressed in euros:

Add up all government subsidies your business has received in the past three years and confirm the allowance will not push you over the ceiling. The application form asks you to select your sector even if you do not think you receive other aid. Missing a grant or picking the wrong sector is where businesses come unstuck at audit.

How to Claim

You claim once at the start of each tax year through your payroll software, by ticking the Employment Allowance indicator on an Employer Payment Summary (EPS).⁹ HMRC’s free Basic PAYE Tools can do this if you do not use commercial software.

Once the EPS is filed, the credit applies automatically to your employer NIC liability each pay period. There is no refund to chase, and you can track the running balance through your business tax account online. If you claim part-way through the year and do not use the full £10,500 by the final payroll run, any leftover can be set against other outstanding PAYE liabilities.

Claiming for Earlier Tax Years

Missed a year you were eligible for? You can go back up to four tax years. The rules that apply are the ones in force in the year you are claiming for, not today’s. Before 6 April 2025 the allowance was £5,000 and the £100,000 NIC threshold was in place, so you need to confirm you met those tests at the time. The de minimis state aid check applies to backdated claims too, using the three-year window ending in the claim year.⁸

If You Claim When You Should Not Have

HMRC uses its standard collection powers to recover any allowance claimed incorrectly, along with interest. Where the error is careless or deliberate, penalties can be added on top of the tax owed. The most common way employers get caught is the connected-companies rule, so decide which entity in a group is claiming before the tax year starts, and record the decision.