Employment allowance 2026/27: how UK employers claim up to £10,500 off employer National Insurance

Employer National Insurance now costs 15% on most employees’ earnings above £5,000 a year. Employment allowance cuts that bill by up to £10,500 each tax year. Since April 2025, far more employers qualify. However, group structures and director-only payrolls still catch out many foreign-owned UK companies. This guide explains who can claim, how to claim and where claims go wrong.

What is employment allowance?

Employment allowance is an HMRC relief that reduces an employer’s Class 1 National Insurance bill. Eligible employers can save up to £10,500 each tax year. You claim it through payroll, and it offsets employer contributions until the allowance runs out. It never reduces the National Insurance your employees pay.

GOV.UK’s employment allowance guidance sets out the rules in full. For example, four employees earning £30,000 each create about £15,000 of employer National Insurance a year. The allowance cuts that bill to roughly £4,500.

What changed with employment allowance 2025/26?

The allowance brought two big changes. From 6 April 2025, the maximum rose from £5,000 to £10,500. The government also scrapped the £100,000 rule. Previously, employers with that much employer National Insurance the year before could not claim. As a result, large employers can now claim too.

The same limit continues this year, as HMRC’s rates and thresholds for 2026 to 2027 confirm.

Tax year	Maximum allowance	£100,000 liability limit
2022/23 to 2024/25	£5,000	Applied
2025/26	£10,500	Removed
2026/27	£10,500	Removed

Who meets the employment allowance eligibility rules?

Most businesses and charities that pay employer Class 1 National Insurance meet the allowance eligibility rules. However, HMRC excludes certain employers and certain types of pay. In short, you cannot claim if any of these apply:

• a single director is your company’s only employee paid above the secondary threshold
• you do more than half your work in the public sector, unless you are a charity
• your only staff do personal, household or domestic work, unless they are care or support workers
• a connected company already claims for the same tax year

Earnings that fall under the off-payroll working rules, known as IR35, do not count either.

Why do foreign-owned UK subsidiaries get caught out?

Foreign-owned UK subsidiaries often trip over two rules. First, companies under common control are connected, so only one can claim. Second, a company whose only paid employee is its director cannot claim. Both rules apply wherever the parent company sits.

HMRC’s guidance on connected companies is clear. If a foreign company controls two UK companies, HMRC treats them as connected. Connected companies can share the apprenticeship levy allowance. Employment Allowance, by contrast, goes to one company only, and the group decides which.

New subsidiaries get a short window, though. A company created or acquired after 6 April has no connected companies for the rest of that tax year. It can therefore claim in its first year.

Meanwhile, the single-director rule hits new UK companies that only pay a managing director. Once a second director or employee earns above the threshold, the company qualifies for the whole tax year. Foreign employers without a UK company may also claim, provided they meet the other rules. First, though, they must register as an employer with HMRC.

How do you claim the allowance?

You claim employment allowance through your payroll software or HMRC’s Basic PAYE Tools. Set the Employment Allowance indicator to “yes” and send an Employer Payment Summary (EPS) to HMRC. You must claim again every tax year. However, you can claim at any point during the year.

1. Confirm eligibility, including any connected companies.
2. Agree which group company will claim.
3. Set the Employment Allowance indicator in your payroll software.
4. Submit an EPS to HMRC.
5. Let payroll offset the allowance until it runs out.

For instance, an employer with £1,050 of monthly employer National Insurance uses the full allowance by month 10. It then pays months 11 and 12 as normal.

Can you claim employment allowance for previous years?

Yes. You can claim up to four years after the end of a tax year. Each year needs a separate EPS. The deadline for 2022/23 claims is 5 April 2027, so check that year now. Remember that the £5,000 limit and the £100,000 test apply to years before 2025/26.

If you cannot use a late claim against current liabilities, HMRC offsets the balance against other PAYE debts. Otherwise, you can ask for a refund.

Compliant UK payroll as a base for cross-border growth

Employment Allowance rewards employers who get their UK structure right, starting with a proper employment allowance eligibility check. For foreign-owned groups, that means knowing which company claims, who sits on payroll and which deadlines apply. People move across borders most smoothly when that structure is clear and compliant.

Octagon Professionals has supported international employers since 1987. Our payroll and HR experts help you reduce the risk of incorrect claims, penalties and missed savings. We check group structures, run compliant UK payroll and keep each tax year’s claim on track. Meanwhile, you keep full control over salaries, benefits and working arrangements. Building or growing a UK team? Talk to Octagon Professionals about compliant UK payroll.

Frequently asked questions about employment allowance

Is employment allowance still £10,500 in 2026/27?

Yes. HMRC confirms the maximum for the 2026/27 tax year is £10,500. Eligible employers set it against employer Class 1 National Insurance. Employment allowance 2025/26 was the first year at that level, up from £5,000. Employers should still check HMRC’s published rates each April, because the limit can change.

Can a single director company claim employment allowance?

Not if the director is the only employee paid above the secondary threshold of £5,000 a year. The company becomes eligible once a second director or employee earns above that threshold. It can then claim for the whole tax year, even if that person joins partway through.

Can two connected companies both claim employment allowance?

No. When companies share common control at the start of a tax year, only one of them can claim. This includes UK companies controlled by the same foreign parent. The group chooses which company claims. Unlike the apprenticeship levy allowance, the amount cannot be split between companies.

How far back can I claim employment allowance?

You can claim for up to four previous tax years, with a separate Employer Payment Summary for each year. Claims for 2022/23 must reach HMRC by 5 April 2027. Older years carry a £5,000 limit and the £100,000 liability test, so check eligibility year by year.