Employment Allowance

Definition

Employment Allowance lets eligible employers cut their employer Class 1 National Insurance bill by up to £10,500 each tax year, and it is claimed through payroll software. A company cannot claim it if a director is the only employee paid above the secondary threshold (£5,000 a year for 2026/27), which rules out most one-person limited companies.

Who can and cannot claim

Businesses and charities can claim, including employers whose employer National Insurance bill was over £100,000 (allowed since April 2025).
A company with two directors both paid above £5,000, or a director plus an employee paid above it, can usually claim.
Only one company in a group of connected companies can claim, and only against one payroll.
Employers of domestic staff, such as a nanny or gardener, cannot claim unless the staff are care or support workers.

Example

The two directors of Maple Ltd are each paid £12,570 in 2026/27. Employer National Insurance is 15% of the £7,570 above the threshold for each director: £1,135.50 each, or £2,271 in total. Employment Allowance covers the full £2,271.

The guide to Employment Allowance for single-director companies explains the sole director rule in detail. The claim is made through payroll, and SmartFiling’s payroll service covers director-only payroll.

Related questions

Can a single-director company claim Employment Allowance? Usually not, unless another director or employee is also paid above £5,000 a year.
What is the most tax-efficient director salary for 2026/27? For most single-director companies, SmartFiling's director salary guide recommends £12,570.