Quick Answer: What is Employment Allowance?
Employment Allowance reduces your employer National Insurance liability by up to £10,500 per year. It is available to most UK employers and is claimed through your payroll software.
| Detail | 2026/27 |
|---|---|
| Maximum allowance | £10,500 |
| Applies to | Employer NI (Class 1 secondary) |
| Claimed via | Payroll software (EPS to HMRC) |
| Frequency | Must be claimed each tax year |
Am I Eligible for Employment Allowance?
Most employers are eligible. The key question is whether any of the exclusions apply to you.
You ARE Eligible If:
- You are a limited company with employees (not just a director)
- You are a sole trader or partnership with employees
- You are a charity
- You are a community amateur sports club (CASC)
You Are NOT Eligible If:
| Exclusion | Detail |
|---|---|
| Single director company | Your only employee is a director (no other staff) |
| Public body | You carry out functions of a public nature |
| Government-funded body | More than 50% of funding from government |
| Connected company | Another connected company is already claiming (see below) |
| Domestic employer | You employ someone for personal, household, or domestic work |
Connected Companies Rules
The connected companies rules are the most complex part of Employment Allowance eligibility. Only one company in a group of connected companies can claim.
What Makes Companies "Connected"?
Companies are connected if:
- One company controls the other
- Both are under common control of the same person(s)
- One company is a subsidiary of the other
Determining Control
A person controls a company if they hold:
- More than 50% of the ordinary share capital, OR
- More than 50% of the voting rights
Examples
| Scenario | Connected? | Who Claims? |
|---|---|---|
| Director owns Company A (100%) and Company B (100%) | Yes | One company only |
| Director owns Company A (60%) and Company B (40%) | Only A is controlled | Both can claim separately |
| Parent company owns 100% of subsidiary | Yes | One company only |
| Two unrelated companies sharing an office | No | Both can claim |
How to Claim Employment Allowance
Step 1: Check Eligibility
Confirm you are eligible using the criteria above. If you have connected companies, confirm which entity will claim.
Step 2: Claim Through Payroll Software
At the start of the tax year (or when you first become eligible):
- In your payroll software, indicate you are claiming Employment Allowance
- The software will include the claim in your Employer Payment Summary (EPS) sent to HMRC
- The allowance is offset against your employer NI liability month by month
Step 3: Monthly Offset
Employment Allowance reduces your monthly employer NI payments until the £10,500 is used:
Example: £2,100/month employer NI
| Month | NI Liability | Allowance Used | Amount to Pay |
|---|---|---|---|
| April | £2,100 | £2,100 | £0 |
| May | £2,100 | £2,100 | £0 |
| June | £2,100 | £2,100 | £0 |
| July | £2,100 | £2,100 | £0 |
| August | £2,100 | £2,100 | £0 |
| September | £2,100 | £0 (allowance exhausted) | £2,100 |
| Oct–March | £2,100/month | £0 | £2,100/month |
Total saving: £10,500
Step 4: Reclaim Each Year
Employment Allowance must be claimed each tax year. It does not roll over automatically.
Employment Allowance for Small Employers
For small employers, Employment Allowance can eliminate employer NI entirely:
| Average Salary | Approximate NI per Employee | Employees Covered by £10,500 |
|---|---|---|
| £20,000 | £2,250/year | ~4.7 employees |
| £25,000 | £3,000/year | ~3.5 employees |
| £30,000 | £3,750/year | ~2.8 employees |
| £40,000 | £5,250/year | ~2.0 employees |
A small business with 3 employees earning £25,000 each would pay zero employer NI thanks to Employment Allowance (total NI liability: £9,000, fully covered by the £10,500 allowance).
Common Mistakes
| Mistake | Consequence |
|---|---|
| Forgetting to reclaim each April | Lose up to £10,500 |
| Multiple connected companies claiming | HMRC will claw back with interest |
| Not updating payroll software | Claim not submitted to HMRC |
| Claiming when sole employee is a director | Ineligible — HMRC will recover |
Tracking Employment Allowance with Grove
Grove helps you monitor your Employment Allowance:
- Eligibility checker based on your company structure
- Remaining allowance tracker showing how much is left each month
- NI cost forecasts with and without the allowance
- Annual reminders to reclaim at the start of each tax year
Use our free employer NI calculator or get started with Grove.
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The Grove Team
Grove HR
The Grove Team writes about HR best practices, compliance, and workplace culture for Grove. Helping UK businesses cultivate thriving teams.
