Employment Allowance guide for limited company directors

If you have employees, the Employment Allowance (EA) can reduce your company’s National Insurance bill by up to £10,500 each year.

In this guide – updated for 2026/27 – we explain how the EA works in practice, and if your company is eligible.

What is the Employment Allowance?

The Employment Allowance reduces the Class 1 Employers’ National Insurance that businesses must pay by up to £10,500 each tax year.

From April 2025, the EA increased from £5,000 to £10,500 – as announced in the Autumn Budget 2024.

It can only be claimed against Class 1 Employers’ NICs, up to the £10,500 limit, every tax year. This rule applies even if you pay less than £10,500 per annum.

This means – of course – you can only benefit if you have employees – and they earn enough for you to pay Employers’ NI.

Can your limited company claim the EA?

The EA is an attractive incentive, but is your limited company eligible to claim it?

Firstly, you need to be a business or charity registered with HMRC as an employer.

However, your company is not eligible if:

• You are the sole director of your company and the only employee earning above the Secondary Threshold (£5,000 in 2026/27). You can learn more about what this means here.
• You employ someone to perform domestic, personal, or household work, such as a gardener or nanny, unless they are an eligible care or support worker.
• You are a business or public body that performs over half of your work within the public sector and are not a charity.

There are also special rules for connected companies. If companies are connected, only one company in the group can generally claim the Employment Allowance.

Importantly for contractors, the EA cannot be claimed against employer NICs arising on deemed payments under the IR35/off-payroll working rules. However, this does not necessarily prevent a company from claiming the EA against ordinary qualifying employee salaries if it otherwise meets the eligibility rules.

Will a typical small company director benefit?

If your company can claim the EA, it only benefits if any employees earn above the current employers’ NIC threshold.

This Secondary Threshold is currently £5,000 per year.

Many small companies pay their director(s) low salaries that are subject to only a small amount of NI, or no NI at all.

A sole-director company where the director is the only employee liable for Employers’ NICs cannot claim. However, a company with two directors who both earn above the Secondary Threshold can qualify, assuming the other eligibility conditions are met.

The EA in practice, during the 26/27 tax year

£12,570 is a tax-efficient salary for directors during the 2026/27 tax year where the company is eligible for the Employment Allowance. The cost of Employers’ NICs can then be covered by the allowance.

• If the employee earns £12,570, no income tax is payable, assuming the full Personal Allowance is available.
• The EA covers £1,135.50 in Employers’ NICs – 15% of the £7,570 above the £5,000 Secondary Threshold.
• The employee pays no NICs on earnings up to the Primary Threshold (£12,570).
• The company also benefits from higher Corporation Tax relief compared to a lower salary such as £6,708.
• In practice, this means a £12,570 salary is usually more tax-efficient for companies that can claim the Employment Allowance.

Don’t include Employers’ NICs on deemed payments under the IR35/off-payroll working rules, as the EA doesn’t cover these costs.

Talk to your accountant, as every company’s situation is different

The EA was introduced to encourage businesses to take on new employees.

Make sure you discuss your company’s eligibility with your accountant.

How to claim the Employment Allowance

To claim via your payroll software, indicate ‘yes’ in the ‘Employment Allowance indicator’ field when you next submit your EPS (Employer Payment Summary) to HMRC.

Alternatively, if you use the Basic PAYE Tools, select your employer, choose ‘Employment Allowance’, check the eligibility criteria and submit your EPS.

For most businesses, de minimis state aid rules no longer apply to current claims. They can still be relevant to certain businesses in Northern Ireland that make or sell goods or wholesale electricity.

You need to apply to claim the EA each tax year as it does not automatically renew.

Can I backdate my Employment Allowance claim?

Yes, you can claim for up to four previous tax years. You need to submit a separate EPS for each year in question, and the eligibility rules that applied in the relevant year must be met.

HMRC explains the current and previous-year rules in its Employment Allowance guidance.

What if my company is no longer eligible to claim the EA?

In the ‘Employment Allowance indicator’ field mentioned above, you need to click ‘No’ if your company no longer meets the eligibility criteria.

Don’t check ‘No’ if you’ve simply used up the £10,500 EA for the tax year, as your company is still eligible.

Again, if you no longer have any employees, don’t select ‘No’, as the EA will automatically expire at the end of the tax year.