Are You Missing Out on the £10,500 Employment Allowance? A 2026/27 Guide for UK Employers

If you run payroll for a UK business and you haven't ticked the Employment Allowance box on your latest Employer Payment Summary, there's a fair chance you're handing HMRC money you don't need to give them. For 2026/27 the allowance sits at £10,500, which is the most it has ever been, and the rules changed enough last year that plenty of employers we speak to still aren't sure whether they qualify.

Here's a plain English run through of what it is, what changed, and what you should be doing about it before the end of this tax year.

What the Employment Allowance actually does

Employment Allowance is a reduction against your employer's secondary Class 1 National Insurance bill. It is not a cash payment from HMRC and it cannot be claimed against your employees' contributions or against Class 1A on benefits. You simply pay less employer NIC each pay run until either the £10,500 is used up or the tax year ends, whichever comes first.

With the employer secondary NIC rate now at 15% and the secondary threshold sitting at just £5,000 a year, the allowance is more valuable than ever. A small employer who used to wipe out their full year's NIC bill with the old £5,000 allowance might already be paying NIC again, so claiming the full amount matters.

The headline figures for 2026/27

Going straight from the HMRC rates page for 2026 to 2027, the numbers you need are:

• Employment Allowance: £10,500 per business per tax year

• Employer secondary Class 1 NIC rate: 15%

• Secondary threshold (when employer NIC starts): £5,000 a year, or roughly £96 a week

• Apprenticeship Levy allowance, which is separate and only relevant once your pay bill passes £3 million: £15,000

A worked example helps. If you have three employees each earning £30,000, your gross employer NIC for the year is roughly (£30,000 less £5,000) x 15% x 3, which works out at £11,250. After Employment Allowance you would only pay £750 of employer NIC for the whole year. Without claiming it, you would hand the full £11,250 to HMRC.

Who can claim for 2026/27

You can claim if you are a business or a charity, including community amateur sports clubs, and you do less than half of your work in the public sector. If you employ a care or support worker, you also qualify.

A useful change that took effect from April 2025 and still applies for 2026/27: the old £100,000 cap on the previous year's employer NIC bill has been removed. This used to lock out medium sized employers entirely. Now, larger employers can claim too, provided the other eligibility rules are met.

Who cannot claim

This is where most of the slip ups happen, so it is worth being precise.

Sole director companies where the director is the only employee paid above the secondary threshold cannot claim. This catches a huge number of one person limited companies. If your spouse is on the payroll at a level that triggers employer NIC, you may qualify, but only if the second person is genuinely employed and paid through PAYE.

Workers caught by IR35 off payroll rules cannot be included in your headcount when assessing eligibility, and their deemed earnings do not generate any Employment Allowance benefit.

Domestic workers such as nannies or gardeners are excluded, unless they are providing personal care or support.

Public bodies and businesses doing more than half of their work in the public sector are out, with some carved out exceptions for things like security and IT services.

If your business is part of a group of connected companies, only one company in the group can claim. HMRC takes connected status seriously and connected companies that each claim the allowance will eventually be picked up in compliance checks.

How to actually claim it

The mechanics are simple. You tick the Employment Allowance box on your Employer Payment Summary, usually in your payroll software, and submit it to HMRC through RTI. You can do this at any point in the tax year, although doing it at the start of the year means the reduction flows through each pay run automatically. If you claim later, you can use the allowance against unpaid NIC for the rest of the year, or claim a refund for the amount already paid.

You can also backdate Employment Allowance for up to four tax years if you were eligible but did not claim. For many small employers this is worth checking, particularly for the years where the allowance was £5,000.

A few things worth double checking before you claim

There is no automatic renewal. You need to tick the box in each new tax year, so a claim in 2025/26 does not roll forward into 2026/27.

If you operate more than one PAYE scheme, you can only claim against one of them. Pick the scheme with the largest employer NIC bill.

State aid was removed as a consideration for most claimants after April 2020, but if your business is in agriculture, fisheries or aquaculture, or you operate in Northern Ireland under the Windsor Framework, there can still be subsidy control limits to think about.

If you change accounting software mid year, check that the previous software actually filed the Employment Allowance claim. We see this slip through every spring.

The bottom line

For a small business paying staff above the secondary threshold, Employment Allowance is one of the easiest ways to save real money on tax, and it is almost certainly the highest pound for pound return you can get from a single tick box. With the allowance now at £10,500 and the employer NIC rate at 15%, the savings are bigger than they have ever been.

If you are not sure whether your structure qualifies, especially if you are a single director company thinking about adding another employee, it is worth a short call with us. A change as simple as bringing your spouse onto the payroll on a properly justified salary can unlock the full allowance, and the tax savings often far exceed the small admin cost of doing it properly.