What is the Employment Allowance and can you claim it?

Published Thursday 3 September 2026

Table of contents

• What is the Employment Allowance?
• How much is the Employment Allowance in 2025/26 and 2026/27?
• Who is eligible for the Employment Allowance?
• Who can't claim the Employment Allowance
• How to claim the Employment Allowance
• Take the stress out of payroll and National Insurance with Xero
• FAQs on the Employment Allowance

Key takeaways

• The Employment Allowance reduces the employers' Class 1 National Insurance you pay, up to £10,500 for the 2025/26 and 2026/27 tax years.
• The saving comes off what you owe on each pay run and runs until you use the full amount or the tax year ends.
• Most small businesses and charities that pay employers' National Insurance can claim, but sole-director companies and off-payroll workers usually can't.
• You claim through your payroll software or HMRC's Basic PAYE Tools, and you can backdate a claim by up to four tax years.

What is the Employment Allowance?

The Employment Allowance is a government scheme that lets eligible employers reduce the National Insurance they pay on their employees' wages. It's aimed at smaller businesses and charities, so you keep more of your money to run and grow your business.

The allowance comes off your employers' (secondary) Class 1 National Insurance. That's the National Insurance you pay as an employer, on top of what your staff pay from their own wages. It lowers the bill you owe to HMRC. You won't get a separate payment into your bank account.

Think of it as a discount on one of your fixed employer costs. Some of the National Insurance you'd normally send to HMRC simply stays with you, up to the yearly limit, freeing up cash for wages, stock, or other running costs.

If you're still getting to grips with how these contributions work, this plain-English introduction to National Insurance covers the basics.

How much is the Employment Allowance in 2025/26 and 2026/27?

The maximum Employment Allowance is £10,500 for both the 2025/26 and 2026/27 tax years. That's a rise from the previous £5,000, so eligible employers can now claim more than double the earlier amount.

You draw the allowance down gradually. Each time you run payroll, it reduces your employers' Class 1 National Insurance until you've used the full £10,500 or the tax year ends, whichever comes first. In the UK the tax year runs from 6 April to 5 April.

From April 2025 the government also removed the old £100,000 cap. Before then, you couldn't claim if your employers' Class 1 National Insurance was more than £100,000 in the previous tax year. That limit has gone, so larger employing businesses can claim too.

Any allowance you haven't used by the end of the tax year doesn't roll over into the next one. That's why it's worth claiming as early in the year as you can, so the saving builds up steadily with each pay run.

Simple example of the saving

Here's how the allowance might work for two different businesses over a single tax year:

Say your business has an annual employers' Class 1 National Insurance bill of £8,000. Because that's below the £10,500 allowance, you could reduce it to £0. A business with a £14,000 bill would use the full £10,500 and pay the remaining £3,500.

Either way, you only save up to the National Insurance you actually owe. The allowance can't take your bill below £0 or turn into a refund of other taxes, so a very small bill simply means a smaller saving.

Who is eligible for the Employment Allowance?

You can usually claim the Employment Allowance if your business or charity pays employers' Class 1 National Insurance and most of your work sits outside the public sector. Charities here include community amateur sports clubs.

You're likely eligible if:

• You pay employers' (secondary) Class 1 National Insurance on your employees' wages.
• You run a business or a charity, including a community amateur sports club.
• You do less than half your work in or for the public sector.
• You employ a care or support worker, even if you mainly do public sector work.

The care or support worker exception is worth knowing about. If you employ someone to give care and support to you or a member of your family, you can claim even when most of your work is in the public sector.

Most owner-managed businesses with a few people on the payroll will qualify. If you've recently taken on your first member of staff, you need to be set up as an employer with HMRC before you can claim. This walkthrough on registering as an employer explains that step.

Checking your position each year matters because both the rules and your circumstances can change. You can confirm the current criteria on the GOV.UK Employment Allowance eligibility page.

Who can't claim the Employment Allowance

Some employers are shut out of the scheme, even when they pay employers' National Insurance. The rules keep the allowance focused on smaller employing businesses.

You can't claim the Employment Allowance if:

• You're the sole director and the only employee paid above the secondary threshold.
• Your workers fall under the IR35 off-payroll working rules.
• You employ someone for personal, household or domestic work, such as a nanny or gardener, unless they're a care or support worker.
• You're part of a group of connected companies and another company has already claimed.
• You've already claimed the allowance against another payroll this year.

The single-director rule catches a lot of small limited companies. If you're the only person on the payroll and no one else is paid above the secondary threshold, you can't claim. Taking on one more employee paid above that threshold can change your position.

If you're running payroll for the first time, it helps to understand what PAYE involves before you set up a claim.

How to claim the Employment Allowance

Claiming happens through your regular payroll process, so there's no separate form to complete. Once you've claimed, the saving is applied for you automatically.

1. Check you meet the eligibility rules for the tax year you want to claim for.
2. Open your payroll software, or use HMRC's free Basic PAYE Tools if you don't have payroll software.
3. Submit an Employer Payment Summary (EPS) to tell HMRC you're claiming the allowance.
4. Let the allowance reduce your employers' National Insurance automatically on each pay run, until you reach £10,500 or the tax year ends.
5. Claim for up to the previous four tax years if you were eligible but didn't claim at the time.
6. Recheck your eligibility at the start of every new tax year.

Keep a note of what you've claimed and check it against your payroll records through the year. If your circumstances change, for example another connected company starts claiming, you may need to stop your own claim to stay within the rules. A quick check now can save you a bigger correction later on.

For a fuller picture of getting pay runs right, this overview of small business payroll is a helpful starting point. You can also begin your claim on the GOV.UK page for claiming the Employment Allowance.

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FAQs on the Employment Allowance

Here are answers to some common questions about the Employment Allowance.

How much is the Employment Allowance in the UK?

It's worth up to £10,500 a year, taken off your employers' Class 1 National Insurance. You can't claim more than your actual employers' National Insurance bill for the year.

Can you claim Employment Allowance with only one employee who isn't a director?

Yes. As long as that employee is paid above the secondary threshold and you meet the other rules, you can claim. The exclusion only applies to companies where the sole director is the only person liable for secondary National Insurance.

How much is the Employment Allowance in 2026?

For the 2026/27 tax year the maximum stays at £10,500, matching the 2025/26 figure. HMRC confirms any change to the amount at each Budget.

Who isn't eligible for the Employment Allowance?

Sole-director companies with no other qualifying staff, workers under IR35 off-payroll rules, and most domestic workers such as nannies can't claim. You also can't claim if you do more than half your work in the public sector, unless you employ a care or support worker.