The Employment Allowance is worth up to £10,500 a year off an employer's Class 1 National Insurance bill in 2026/27, unchanged from 2025/26 after the increase from £5,000 in April 2025. It is claimed through payroll rather than paid out, reducing what you owe HMRC each time you run payroll until the allowance is used up or the year ends.
The rule that catches owner-managed companies
A company cannot claim if its only employee paid above the secondary threshold is a director. That excludes the most common structure in the UK: one director, no other staff, salary set at a tax-efficient level.
Employer NI in 2026/27 is 15 percent on earnings above a £5,000 secondary threshold. So a sole director on a £12,570 salary generates employer NI of £1,135.50, and pays all of it.
What changes with a second employee
If the company employs someone else paid above £5,000, whether a genuine second employee or a second director, the company becomes eligible, and the full £10,500 is available for the whole year.
Take the same company and add a part-time administrator on £6,000. Employer NI becomes £1,135.50 on the director plus £150 on the new employee, £1,285.50 in total, and the allowance covers all of it. The company goes from paying £1,135.50 to paying nothing.
The word doing the work in that sentence is genuine. A spouse on the payroll who does no work for the company is not a second employee, and HMRC treats it accordingly. Where a spouse genuinely does work, such as bookkeeping, admin or answering the phone, the salary needs to be commercially justifiable for the hours involved, and it needs to be paid.
Where eligibility changes the salary decision
For a company that can claim, a salary at the personal allowance of £12,570 is usually the efficient choice: the employer NI is covered by the allowance, no income tax is due, no employee NI is due, and the company gets corporation tax relief on the larger salary.
For a company that cannot claim, the calculation shifts, and a lower salary around £6,708 is often better. It is enough to secure a qualifying year for the state pension while keeping employer NI to roughly £256.
Other things to know
The old £100,000 employer NI liability cap on eligibility has been removed, so larger employers who previously could not claim now can.
The allowance must be claimed every year through an Employer Payment Summary; it does not roll forward automatically, and it cannot be carried between tax years. Connected companies and charities share a single £10,500 between them. It cannot be set against deemed payments under IR35. And you cannot claim if more than half your work is for a public sector body.
Worth a review
Two questions are worth asking each year: is the company claiming the allowance it is entitled to, and if it is not eligible, is the salary set at the right level for that fact? The two decisions interact, and getting the second one wrong quietly costs a four-figure sum over a few years.
The figures above are for 2026/27 and assume total personal income below £100,000, where the personal allowance starts to taper.
