Almost certainly not. If your company has one director and that director is the only employee liable for secondary Class 1 National Insurance, you are excluded from the Employment Allowance. HMRC’s guidance says so directly, and has since April 2016.
This matters more now than it used to. The allowance is £10,500 and employer National Insurance is 15% above a £5,000 secondary threshold, so getting eligibility wrong is expensive in both directions — claiming when you cannot, or failing to claim when you can.
What the Employment Allowance is
It reduces your employers’ Class 1 National Insurance bill by up to £10,500 a year. You pay less employer NIC on each payroll run until the £10,500 is used up or the tax year ends, whichever comes first.
It is not a cash grant. It only offsets employer NIC. If your liability is less than £10,500, you claim the smaller amount and cannot get a refund of the difference.
One change worth knowing: the restriction that shut out employers with more than £100,000 of secondary Class 1 NIC liabilities in the previous year was removed from April 2025. For 2025/26 onwards there is no upper limit. For claims relating to 2024/25 or earlier, the £100,000 test still applies.
The exclusion, in HMRC’s own words
“Limited companies cannot claim Employment Allowance if they have just one director and that director is the only employee liable for secondary Class 1 National Insurance.”
Read the second half of that sentence carefully. It does more work than the first half.
The test is not “one director” — it is “one employee above the threshold”
This is where most content, and most companies, get it wrong.
HMRC is explicit that the rule “means that companies with several employees, where the director is the only employee paid above the Secondary Threshold, are not eligible for the Employment Allowance.”
A company with a director on £12,570 and four part-time staff each on £4,000 is not eligible. None of the four is paid above the £5,000 secondary threshold, so the director is the only employee liable for secondary Class 1 NIC and the exclusion bites.
The restriction applies only to limited companies. It does not apply if you are self-employed.
When a company does qualify
HMRC calls it the additional employee test. If more than one employee or director earns above the secondary threshold, you are eligible for the whole tax year.
HMRC’s guidance lists the situations this includes:
- All employees are directors, and both earn above the secondary threshold
- The company employs husband and wife directors and both earn above the secondary threshold
- The company employs seasonal workers, and one or more is an employee earning above the secondary threshold in a week
- You are the only UK-based employee of an international company that meets the other criteria, and you earn above the secondary threshold in a week
The decisive factor is that the additional employee must be paid above the secondary threshold. Employing someone is not enough. Paying them £3,000 a year is not enough.
Directors have their own rule: HMRC says they must be paid above the annual secondary threshold — £5,000 for 2026/27 — or pro-rata if the directorship began after the start of the tax year.
What it is worth
Employer National Insurance is 15% above £5,000 a year.
| Situation | Employer NIC before the allowance | After the £10,500 allowance |
|---|---|---|
| One director on £12,570, no other staff | £1,135.50 | Not eligible — £1,135.50 payable |
| Two directors on £12,570 each | £2,271.00 | £0 |
| One director on £12,570 plus five employees on £30,000 each | £19,885.50 | £9,385.50 |
The second row is the striking one. Adding a second director paid above the threshold does not just cover that director’s own £1,135.50 — it makes the company eligible, so the allowance wipes out the first director’s employer NIC too. All £2,271 disappears.
That is not a reason to appoint a second director. It is a reason to check the position if a spouse, business partner or employee could legitimately be paid above the threshold for work they do. Paying someone for a job they do not perform creates a much larger problem than the one it solves.
Changes during the year
Once you are in, the rules are more generous than people expect.
If you become eligible mid-year, you are eligible for the whole tax year. Take on a second employee above the secondary threshold in December and the allowance covers the full year’s liability.
If you stop being eligible mid-year, you keep the allowance for that tax year. HMRC’s guidance says that where a company had several employees above the secondary threshold and circumstances change so the director becomes the only one, you can still claim for that year. Stop the claim for the following year.
Do not stop mid-year for the wrong reasons. If you stop before 5 April, any allowance already given that year is removed and the employer NIC becomes payable.
How to claim
The claim runs through payroll, not a separate application form.
- Set the Employment Allowance indicator to ‘Yes’ in your payroll software.
- Send an Employment Payment Summary (EPS) to HMRC. If your software has no EPS field, use HMRC’s Basic PAYE Tools.
- The allowance is offset against your employer NIC as you submit Full Payment Submissions.
Points that catch people out:
- You must claim every tax year. It does not roll forward automatically.
- You can claim at any point in the year, but the earlier the better. Claim late and you must ask HMRC to set any unused allowance against another liability, or refund it after the year end.
- You can claim for the previous 4 tax years, back to 2022/23. The allowance was £10,500 for 2025/26 and £5,000 for each year from 6 April 2022 to 5 April 2025.
- HMRC does not send a confirmation letter. A rejected claim gets an automated message within 5 working days; silence means it went through.
- To stop, set the indicator to ‘No’ in your next EPS — but not just because you have used the full £10,500, or stopped employing anyone.
Who else cannot claim
Beyond the single-director exclusion:
- Public bodies, and businesses doing more than half their work in the public sector — unless you are a charity
- Connected companies and groups of charities can only claim once across the group
- Where you have more than one PAYE reference, you can only claim against one payroll
- Employees whose earnings fall within the off-payroll working rules cannot be included
- People employed for personal, household or domestic work — a nanny or gardener — unless they are a care or support worker
De minimis state aid limits still apply to some businesses — in practice Northern Ireland firms making or selling goods or wholesale electricity. The three-year euro limits are €20,000 agriculture, €30,000 fisheries, €100,000 road freight and €200,000 industrial and other.
Getting it wrong
Claim when you are not eligible and HMRC will expect the employer National Insurance back, with late payment interest — 7.75% from 9 January 2026 — and possibly a penalty.
The reverse error is quieter and just as costly. A company that becomes eligible partway through a year and never updates the indicator pays employer NIC it did not owe. That is recoverable for up to four years, so it is worth a look back.
Frequently asked questions
Can a single-director company claim the Employment Allowance?
No. HMRC’s guidance is explicit: limited companies cannot claim Employment Allowance if they have just one director and that director is the only employee liable for secondary Class 1 National Insurance. This has been the position since April 2016 and applies only to limited companies.
What if my company has other employees as well as the director?
It depends entirely on what they are paid. A company with several employees where the director is the only person paid above the secondary threshold is still not eligible. At least one other employee or director must earn above the £5,000 secondary threshold.
How much is the Employment Allowance for 2026/27?
£10,500. It reduces your employers’ Class 1 National Insurance liability by up to that amount, and it cannot be claimed as a refund if your liability for the year is smaller. The £100,000 restriction on employers with large NIC liabilities was removed from April 2025.
How do I claim the Employment Allowance?
Through your payroll software. Set the Employment Allowance indicator to ‘Yes’ and submit an Employment Payment Summary to HMRC, or use HMRC’s Basic PAYE Tools if your software has no EPS field. You must claim each tax year, and you can claim at any point during the year.
Can I claim the Employment Allowance for previous years?
Yes, for the previous 4 tax years going back to 2022/23, provided you were eligible. The allowance was £10,500 for 2025/26 and £5,000 for each year between 6 April 2022 and 5 April 2025. For 2024/25 and earlier, your employers’ Class 1 National Insurance liabilities must have been under £100,000 in the previous tax year.
Getting the payroll indicator right
The Employment Allowance is a single field in your payroll software, ticked or not, that costs or saves up to £10,500 a year. Review it every April and whenever the headcount above the secondary threshold changes.
SmartFiling runs RTI payroll from £15 per employee per month, including auto-enrolment, payslips, P60s and year-end returns. Every client’s work is reviewed by an ICAEW Chartered Accountant, and the whole process is online.
