If you’re a UK business owner with employees, there’s a valuable tax relief you might be missing out on.
The Employment Allowance allows eligible employers to reduce their employer National Insurance bill by up to £10,500 for the 2026/27 tax year. For many small businesses, that can make a real difference to cash flow and overall payroll costs.
The important thing to know? It’s not applied automatically. You need to actively claim it.
So, could your business qualify?
What Is the Employment Allowance?
The Employment Allowance is a government relief that helps employers reduce their secondary Class 1 National Insurance contributions (NICs).
In simple terms, it lowers the amount of employer National Insurance your business has to pay through payroll.
For the 2026/27 tax year, eligible employers can claim up to £10,500.
Who Can Claim Employment Allowance?
Many businesses and charities are eligible to claim.
You may qualify if:
- You’re a business or charity with employees
- You employ a care or support worker
- Less than half of your work is in the public sector
There’s also good news for growing businesses. The previous restriction linked to employers with a Class 1 National Insurance liability over £100,000 has now been removed.
However, there are some exclusions.
Who Can’t Claim?
The allowance generally isn’t available if:
- Your company only has one employee
- That employee is also the director
This means many single-director limited companies won’t qualify.
Unsure whether your setup counts? This is where getting advice can really help, especially if your business structure has changed recently.
How Does the Allowance Work?
The allowance is applied against your employer National Insurance bill throughout the tax year until the full amount has been used.
For example, if your employer NIC bill is lower than £10,500 for the year, your allowance is simply capped at the amount you owe.
Example
Let’s say a family-run company has an employer National Insurance liability of £3,000 per month.
After claiming the Employment Allowance:
- Months 1–3 would be fully covered
- Part of month 4 would also be reduced
- The remaining months would then be payable as normal once the allowance has been used up
That’s a significant saving early in the tax year and could help improve monthly cash flow.
How Do You Claim Employment Allowance?
The claim is made through your payroll software by submitting an Employer Payment Summary (EPS).
Usually, this involves selecting “yes” in the Employment Allowance indicator box.
If your payroll software doesn’t support this feature, HMRC’s Basic PAYE Tools can also be used.
Can You Claim for Previous Years?
Yes — and this is something many businesses overlook.
If you were eligible but didn’t claim, you can usually backdate your claim for up to four previous tax years.
That could potentially mean thousands of pounds in missed savings being reclaimed.
Important Things to Remember
There are a few key points worth knowing:
- You can only claim one Employment Allowance across all PAYE schemes
- Claims can be made at any point during the tax year
- Claiming earlier means you benefit sooner
- Any unused allowance may be offset against other taxes such as VAT or Corporation Tax
- In some cases, HMRC may issue a refund
Are You Missing Out?
Many business owners simply assume they don’t qualify or forget to make the claim altogether.
With payroll rules and National Insurance changes becoming increasingly complex, it’s always worth checking whether your business could benefit.
At Jon Davies Accountants, we help businesses across Liverpool and the UK make sure they’re not paying more tax than necessary.
If you’d like help checking your eligibility for Employment Allowance or reviewing your payroll setup, get in touch with Jon and the team today. We’ll be happy to help you make sure you’re claiming everything you’re entitled to.
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Any questions?
If you’d like a meeting or a video call to discuss this, please get in touch with your favourite Liverpool accountant
- You can ring us on 0151 380 8080
- You can email us at gr****@*********************co.uk