Employment Allowance: cutting your employer's National Insurance
If you employ people, the Employment Allowance can take up to £10,500 off your employer's National Insurance bill this year. It is one of the most valuable reliefs available to a small employer — and one that a surprising number of eligible businesses never switch on, because it is not given automatically.
What the Employment Allowance is
The Employment Allowance is a relief against employer's (secondary) Class 1 National Insurance. Employer NI is charged at 15% on each employee's earnings above the £5,000 secondary threshold in 2026/27. The allowance lets eligible employers reduce that bill by up to £10,500 a year — roughly the employer NI on £70,000 of pay above the threshold. For a small business with a few staff, that can mean paying little or no employer NI at all.
Who can claim
Most businesses and charities that employ people can claim, provided their total employer NI bill was under £100,000 in the previous tax year. If you have recently taken on your first employee, it is one of the first things to get set up — our guide to hiring your first employee covers the wider payroll picture.
Who can't claim — the single-director trap
The important exception catches a lot of owner-managers. A company where the only person paid above the secondary threshold is a single director cannot claim the Employment Allowance. So a typical one-person limited company, with the director as the sole employee, is not eligible.
The moment you take on a second employee paid above the secondary threshold, the company usually becomes eligible. This is worth knowing if you are about to make your first hire, because it changes the real cost of that employee.
It is not automatic
You claim the allowance through your payroll software, which flags it to HMRC, and it then reduces your employer NI as the year progresses. If you were eligible in earlier years and never claimed, you can usually backdate a claim up to four years — so it is worth checking your history as well as your current settings.
Why it matters more now
With employer NI charged at 15% on earnings above a relatively low £5,000 threshold, the cost of employing people has risen in recent years. That makes the £10,500 allowance more valuable than ever for small employers, and it sits alongside your other duties as an employer, such as auto-enrolment pensions.
If you employ even one or two people beyond a sole director and you are not claiming the Employment Allowance, you are very likely handing HMRC money you do not owe. We run payroll for employers across Garforth and Leeds and make sure every allowance is claimed and kept current. It is worth a quick look at your payroll settings — unlike most tax savings, this one shows up straight away.
This is general information, not advice for your circumstances. If you'd like it applied to your situation, get in touch — the first chat is free.
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