Employment Allowance 2026/27: Can You Claim It?

For many UK employers, the Employment Allowance is one of the most valuable tax reliefs available. In the 2026/27 tax year, eligible businesses can reduce their employer National Insurance contributions (NICs) by up to £10,500.

Despite the significant savings it offers, the allowance is not applied automatically. Employers must actively claim it through their payroll system to benefit from the relief.

What Is Employment Allowance?

Employment Allowance is a government initiative designed to help businesses reduce their employer National Insurance costs. Once claimed, the allowance is used to offset an employer’s secondary Class 1 National Insurance liability throughout the tax year.

For the 2026/27 tax year, the maximum allowance available is £10,500.

Who Can Claim Employment Allowance?

Most businesses and eligible organisations can claim Employment Allowance if they pay employer National Insurance contributions.

You may be eligible if you are:

• A business or company employing staff
• A charity with employees
• An employer who hires a care or support worker
• A public body that carries out less than 50% of its work in the public sector

Who Cannot Claim?

Employment Allowance is generally not available to companies where:

• There is only one employee liable for employer National Insurance contributions, and
• That employee is also the company’s director

As a result, many single-director limited companies with no other employees are unable to benefit from the allowance.

Important Change

Previously, employers could only claim Employment Allowance if their employer National Insurance liability in the previous tax year was £100,000 or less.

This restriction has now been removed, allowing more businesses to qualify for the relief.

How Does Employment Allowance Work?

The allowance is applied against your employer National Insurance bill throughout the year until the full amount has been used.

If your annual employer National Insurance liability is less than £10,500, your allowance will be limited to the amount of your actual liability.

In other words, you cannot receive more relief than the employer National Insurance you owe.

Example: Employment Allowance in Practice

Consider a family-owned company with an employer National Insurance liability of £3,000 per month.

After successfully claiming Employment Allowance for 2026/27:

• Month 1 liability (£3,000) is covered
• Month 2 liability (£3,000) is covered
• Month 3 liability (£3,000) is covered
• £1,500 of the allowance remains available in Month 4

This reduces Month 4’s National Insurance bill from £3,000 to £1,500.

Once the full £10,500 allowance has been used, the company must pay its employer National Insurance contributions in full for the remainder of the tax year.

How to Claim Employment Allowance

Employers can submit a claim at any point during the tax year. However, claiming early allows businesses to benefit from the savings sooner.

The claim is usually made through payroll software by selecting “Yes” in the Employment Allowance indicator section of the Employer Payment Summary (EPS).

Businesses using HMRC’s Basic PAYE Tools can also submit a claim through the software.

Can You Make a Backdated Claim?

Yes. If you were eligible but failed to claim Employment Allowance, you may be able to backdate your claim for up to four previous tax years.

This can result in significant savings and potential refunds for qualifying employers.

What If You Have Multiple PAYE Schemes?

Businesses operating more than one PAYE scheme should be aware that Employment Allowance is granted per employer, not per PAYE scheme.

This means only one allowance can be claimed, regardless of how many PAYE schemes the business operates.

What Happens If You Do Not Use the Full Allowance?

If you make a claim later in the tax year and part of the allowance remains unused, you can ask HMRC to:

• Offset the unused amount against other tax liabilities, such as VAT or Corporation Tax
• Offset it against other outstanding National Insurance liabilities
• Refund the amount if no tax is owed

This ensures eligible employers do not lose out on the relief available to them.

Final Thoughts

Employment Allowance remains a valuable opportunity for UK employers to reduce their payroll costs. With up to £10,500 available in 2026/27 and the removal of the previous £100,000 eligibility threshold, more businesses than ever may qualify.

If you employ staff and pay employer National Insurance contributions, reviewing your eligibility and submitting a claim could deliver substantial savings for your business.

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