The Employment Allowance is a very valuable allowance which allows eligible employers to reduce their secondary Class 1 National Insurance bill by up to £10,500 in 2026/27. The allowance is not given automatically and must be claimed.

Who can claim

Employers can claim the allowance if they are a business or a public body and they do less than half their work in the public sector. However, the allowance is not available to companies that have only one employee liable for secondary contributions who is also a director. This means that most personal companies in which the same person is both the director and the only employee do not benefit. So it may not apply to small personal service companies.

The Employment Allowance can also be claimed by charities and by those who employ a care or support worker.

The Employment Allowance is no longer restricted to employers whose Class 1 National Insurance liability in the previous year was £100,000 or less.

How it works

The allowance is offset against the employer’s secondary Class 1 National Insurance liability each month until it is exhausted. If the employer’s secondary Class 1 National Insurance liability is less than £10,500 in 2026/27, their allowance is capped at their secondary Class 1 National Insurance liability for the year.

Example

A Ltd is a family company. Its secondary Class 1 National Insurance liability is £3,000 a month. It claims the Employment Allowance for 2026/27.

The allowance shelters their secondary Class 1 liability in months one, two and three, leaving £1,500 available to set against their secondary Class 1 liability for month four, reducing it to £1,500. As the allowance has now been exhausted, the company must pay its secondary Class 1 liability in full for months 5 to 12.

Claiming the allowance

A claim can be made at any time in the tax year. However, the earlier the claim is made, the sooner the employer can start to benefit from it.

The claim is made through the employer’s payroll software (or by using HMRC’s Basic PAYE Tools package if the software does not facilitate a claim) by clicking ‘yes’ in the Employment Allowance indicator box in the Employer Payment Summary (EPS).

A claim can also be made for any of the previous four tax years in which the employer was eligible but did not claim

Where an employer has more than one PAYE scheme, they are only entitled to one Employment Allowance rather than one per PAYE scheme.

If a claim is made late and the Employment Allowance is not used against the employer’s secondary Class 1 National Insurance liability for the year, the employer can ask HMRC to set any unclaimed allowance against any tax or National Insurance that they owe, including VAT and corporation tax. If they owe nothing, they can ask HMRC for a refund.