Employment Allowance 2026-27: £10,500 Explained

What is the Employment Allowance?

The Employment Allowance allows eligible employers to reduce their employer National Insurance liability by up to £10,500 per year (2026-27). It is not a cash payment — it offsets employer NI due, reducing the company's HMRC payments throughout the year until the allowance is exhausted.

Who can claim?

Most employers with two or more employees can claim. However, there are important exclusions:

• Sole director companies (where the director is the only employee) cannot claim
• Companies whose employer NI liability exceeded £100,000 in the previous tax year cannot claim
• Companies connected with one that has already claimed cannot claim

How to claim

The claim is made through your payroll software. Tick the Employment Allowance indicator in your Full Payment Submission (FPS) or Employer Payment Summary (EPS) at the start of the tax year. HMRC will apply the allowance against your employer NI payments.

Impact on salary strategy

If you have at least one other employee and can claim the Employment Allowance, your employer NI cost on salary is effectively eliminated for much of the year. This makes a higher salary significantly more efficient — potentially worth taking salary up to the basic rate threshold rather than the personal allowance, depending on your tax position.