The Employment Allowance reduces your employer National Insurance bill by up to £10,500 a year. For a small employer it can remove the charge entirely.
It is not automatic. You have to claim it, every tax year, and a substantial number of eligible employers never do.
What it actually reduces
Only the employer’s secondary Class 1 National Insurance — the 15% charged on earnings above £5,000 a year.
It does not reduce PAYE, the employee’s own National Insurance, Class 1A on benefits in kind, or the Apprenticeship Levy. Nothing changes on anyone’s payslip — this is purely a reduction in what you pay HMRC.
Who can claim
Most businesses and charities with employer National Insurance liability, provided that liability was under £100,000 in the previous tax year.
For connected companies, the £100,000 test applies to the group total, and only one company in the group may claim.
The single-director rule
You cannot claim if the only person on the payroll earning above the Secondary Threshold is a director. This excludes a very large number of one-person limited companies, and it is the single most common reason a claim is later withdrawn by HMRC.
Two directors both paid above the threshold, or one director plus one employee above it, and you can claim. One director alone, and you cannot — regardless of how much the company pays in National Insurance.
Other exclusions
- Someone employed for personal, household or domestic work — a nanny, cleaner or gardener — unless they are a care or support worker
- Public bodies, and businesses doing more than half their work in the public sector, unless a charity
- Deemed payments under IR35 off-payroll rules
How much you actually get
Up to £10,500, but only as much as your employer National Insurance bill. It reduces the liability; it is never refunded as cash.
| Employer NI for the year | Allowance used | You pay |
|---|---|---|
| £3,750 | £3,750 | Nil |
| £8,000 | £8,000 | Nil |
| £10,500 | £10,500 | Nil |
| £18,000 | £10,500 | £7,500 |
It is applied as you go, not in one lump. Each month your employer National Insurance is offset until the allowance runs out, so a small employer may pay nothing for several months and then start paying.
Worked example
Four staff on £30,000 each. Employer National Insurance is 15% on the £25,000 above the Secondary Threshold for each — £3,750 a head, so £15,000 for the year.
The allowance covers £10,500 of that, leaving £4,500 to pay. In practice you would pay nothing until roughly month eight, then the balance.
How to claim
- Claim through your payroll software on an Employer Payment Summary
- Tick that you are eligible, and select your business sector for the state aid declaration
- Submit it — there is no separate form and nothing to send by post
You must claim each tax year. It does not roll over, and this is where most employers lose it — the first year is claimed carefully, the next is forgotten.
You can claim up to four years late, so if you have never claimed and were eligible, it is worth going back.
Common mistakes
- Assuming a single-director company qualifies — it does not, and HMRC will reclaim it
- Claiming once and stopping — a fresh claim is needed each year
- Claiming across connected companies — only one may claim
- Expecting it against PAYE — employer National Insurance only
- Claiming for a nanny or cleaner — domestic staff are specifically excluded, as our household employer guide explains
Work out your employer National Insurance for 2026/2027 with the employment cost calculator, or see where it sits among your other costs in our guide to what an employee really costs. For the underlying rates, see the National Insurance guide.