Employment Allowance
UK tax glossary · Last reviewed: April 2026
Employment Allowance (EA) lets eligible businesses offset up to £10,500 of employer Class 1 NI per tax year (2026/27). The allowance is claimed through payroll software and reduces the monthly employer NI payment until the £10,500 is used up.
Most employers are eligible, but you cannot claim if your total employer NI bill was £100,000 or more in the previous tax year, or if you are a sole director with no other employees. From April 2020, only companies with employer NI liability below £100,000 qualify.
For small businesses, the Employment Allowance can eliminate most or all of the employer NI cost. Combined with efficient salary and dividend structuring, it is a key tool in minimising the overall tax burden for small-company directors.
Worked example
Small employer with three staff. Employer NI bill: £8,000/year. Employment Allowance: £8,000 (capped at actual liability, well below £10,500 maximum). Employer NI actually paid: £0. Annual saving: £8,000.
Common questions
Can a sole director company claim Employment Allowance?
No. If you are the only director and have no other employees on the payroll, Employment Allowance does not apply. You need at least one other employee or director drawing a salary.
Do I need to re-claim Employment Allowance each year?
Yes. From 2020/21 onwards, you must claim the allowance at the start of each tax year through your payroll software. It is not automatically carried forward.
Related resources
TaxHelper provides general information based on published HMRC rates and guidance. It is not regulated financial or tax advice. For decisions involving significant sums, complex circumstances, or if you are unsure, speak to a qualified accountant or HMRC directly.