Employer National Insurance now bites much earlier in the pay scale than it used to, after the Secondary Threshold was cut sharply from April 2025. That makes Employment Allowance — a relief that wipes out a chunk of your employer NI bill — more valuable than ever for small businesses that qualify. Yet plenty of eligible employers simply never claim it, and plenty of single-director companies wrongly assume they can, then get caught out by HMRC. Here is what to check for 2026/27.
What Employment Allowance actually does
Employment Allowance reduces the employer's Class 1 National Insurance liability, up to £10,500 for the 2026/27 tax year. It is not a cash refund — it is applied automatically against your NI bill each time you run payroll, until either the allowance is used up or the tax year ends, whichever comes first. If your total employer NI for the year is less than £10,500, you simply pay nothing; if it is more, you pay only the excess.
Crucially, it is not applied automatically by HMRC. You have to actively claim it through your payroll software (or ask your payroll provider to) by ticking the relevant box on your Employer Payment Summary. Miss the tick box and you pay the full amount with no automatic backdating within the same year.
Who qualifies
Most ordinary employers — limited companies, sole traders, partnerships and charities — can claim if they pay employer Class 1 National Insurance on at least one employee's earnings. Certain groups are excluded, including public bodies carrying out mostly public-sector functions, and businesses that have exceeded relevant state aid limits.
The single-director trap
This is the rule that catches out the most small companies. If your limited company has only one director, and that director is the only person whose earnings create an employer NI liability, the company cannot claim Employment Allowance. HMRC's own guidance is explicit on this: a single-director company only becomes eligible once it has at least one other employee (which can be a second director) who is also paid above the Secondary Threshold.
The good news is this can change mid-year. If you take on your first employee partway through the tax year and pay them above the threshold, your company becomes eligible for the full year's allowance from that point — it does not need to be in place from 6 April. Conversely, if that employee later leaves, you keep the allowance for the rest of that tax year but need to reassess before claiming again next year.
Why the numbers matter more this year
Employer NI is currently charged at 15% on earnings above the Secondary Threshold, and that threshold sits much lower than it did before April 2025 — £5,000 a year (£417 a month), down from the previous £9,100. That combination means employer NI now starts accruing on far more of an average wage bill than it used to, which is precisely why Employment Allowance matters more for genuinely eligible small employers than it has in years.
What to do now
If you employ staff beyond a sole director, check your payroll software has the Employment Allowance claim switched on for 2026/27 — it needs re-confirming each tax year, it does not roll over automatically. If your circumstances changed this year (new employee, new co-director, or the reverse), revisit whether you still qualify before your next EPS submission. And if you are not sure either way, it is worth a five-minute conversation rather than guessing.
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