Employment Allowance 2026: £10,500, Who Qualifies, Who Doesn't, and How to Claim It

£10,500 sitting on the table. HMRC will not send you a letter telling you to collect it. Your payroll software will not automatically claim it. Your accountant may claim it for you — or may not, depending on whether they run your payroll or just your accounts.

If nobody has claimed the Employment Allowance for your business this tax year, the full £10,500 is not being used. The employer NI you have been paying since April — every month, building up — has been overstated by the amount that could have been offset.

The Employment Allowance for 2026/27 is £10,500. It reduces your employer Class 1 National Insurance bill by up to that amount across the tax year. It is claimed once, it applies automatically, and it does not exist unless you claim it.

How It Works in Practice

The Employment Allowance operates as a monthly offset against the employer NI element of your PAYE payment.

If your employer NI for April is £900, and you have claimed the allowance, you pay nothing to HMRC in April — the £900 is covered by the allowance, leaving £9,600 of the £10,500 available for subsequent months. In May, another £900 employer NI — covered again. This continues until the £10,500 is exhausted, at which point normal employer NI payments resume.

For an employer with monthly employer NI of around £900, the allowance covers roughly the first eleven and a half months of the year. For larger employers with higher NI bills, it exhausts earlier. For very small employers, it may cover the entire year.

The allowance does not generate a cash refund. If your total employer NI for the year is £7,000 and the allowance is £10,500, you pay no employer NI for the year. The remaining £3,500 of unused allowance disappears — it does not carry forward to the next year and is not paid out.

Who Cannot Claim

The exclusions are specific, and the most commercially significant one is the sole director rule.

Sole director companies — where the only employee paid above the Secondary Threshold of £5,000 per year is a director — cannot claim the Employment Allowance. The company is not eligible. The allowance cannot be applied to director NI.

This affects a large number of one-person limited companies. The director-shareholder model, where a single director takes a salary through the company and the rest as dividends, produces a payroll of one — and that payroll does not qualify.

The way out of this exclusion is to employ a second worker who earns above the Secondary Threshold. A part-time employee on a modest salary, a spouse on the payroll in a genuine capacity, an assistant on a few hours per week — if they earn above £5,000 per year and are paid through the payroll, the company may become eligible. The structure and substance of the arrangement matters. HMRC scrutinises employment arrangements that appear designed purely to access the allowance.

Employers with prior-year NI above £100,000 — larger employers are excluded. If your employer NI bill for 2025/26 exceeded £100,000, the allowance is not available for 2026/27.

Connected companies — companies under common control cannot claim the allowance through multiple entities. Only one company in a connected group can claim the £10,500.

Public bodies — government departments, NHS bodies, local authorities, and similar organisations are excluded regardless of NI bill size.

Claiming It Mid-Year

The allowance should be claimed at the start of the tax year — April. Most payroll software prompts for this during the year-start setup.

If it was not claimed in April, it can be claimed at any point during the tax year. The claim is made by:

1. Updating the Employment Allowance indicator in the payroll software
2. Submitting an EPS to HMRC with the allowance flagged
3. The software then reduces subsequent employer NI payments by the unclaimed amount

For the months already paid without the allowance, a retrospective adjustment can be requested — either through the software's year-to-date correction function or directly with HMRC. The unclaimed months can be recovered. It requires reconciliation, but the money is retrievable.

If the tax year ends without the allowance being claimed at all, a retrospective claim can still be submitted via HMRC's systems for up to four years. The allowance has a shelf life longer than the tax year in question.

The Difference It Makes

At the current employer NI rate of 15% and Secondary Threshold of £5,000, the Employment Allowance is worth more in real terms than it was when employer NI was 13.8% and the threshold was £9,100. The higher rate and lower threshold mean employer NI bills are higher. The allowance offsets a larger proportion of that bill for eligible employers.

An employer with five full-time staff on the National Living Wage — annual employer NI of approximately £14,800 — reduces that bill to £4,300 with the Employment Allowance. That is a direct cash saving. Not a deferral. Not a complexity. A straightforward offset.

If your business is eligible and it has not been claimed, that saving is sitting uncollected.

bookd. checks Employment Allowance eligibility as part of the payroll setup process and claims it where applicable from the start of the tax year. If your current payroll arrangements haven't confirmed whether the allowance has been claimed for 2026/27, that confirmation is worth getting today.