How to Claim Employment Allowance on Your Payroll (2026/27)

Claim up to £10,500 off employer National Insurance by setting the indicator on your EPS. Who qualifies, backdating, and what to do if you claimed wrongly.

2026/27 tax year

Business & Company (LTD)
Employer
Company (LTD)
UK-wide

Summary

Employment Allowance cuts your employer (secondary) Class 1 National Insurance by up to £10,500 in the 2026/27 tax year, and you must claim it again every tax year.
You claim by putting 'Yes' in the Employment Allowance indicator field on an Employer Payment Summary (EPS) from your payroll software, or through HMRC's Basic PAYE Tools if your software has no EPS.
A limited company cannot claim if it has one director and that director is the only employee paid above the Secondary Threshold, and connected companies get one allowance between them.
You can claim for a past tax year up to 4 years after it ended: a 2022/23 claim must be made by 5 April 2027.
If you stop a claim because you were never eligible, the whole year's allowance is removed and you must pay the employer National Insurance it covered.

This guide is general information, not advice.

This guide is for employers who pay employer (secondary) Class 1 National Insurance through a payroll: limited companies, charities, and people who employ a care or support worker.

At the end you will have the allowance switched on for 2026/27, know when it will run out, and know whether you have an unclaimed earlier year worth going back for.

Before you start

Have these ready:

Your employer PAYE reference and access to your payroll software or HMRC’s Basic PAYE Tools.
A list of everyone on the payroll and what they are paid, so you can check who is above the Secondary Threshold. For 2026/27 that is £5,000 a year (per HMRC rates and thresholds for employers 2026 to 2027).
Details of any connected companies or charities in your group. Only one of them can claim.
Your employer Class 1 National Insurance totals for past years, if you intend to backdate a claim.
If your business is in Northern Ireland and makes or sells goods or wholesale electricity, any de minimis state aid letters you have received. These matter for past-year claims.

Step-by-step

Check you are eligible for this tax year. Per GOV.UK’s eligibility page, you can claim for the current tax year if you are a business or public body doing less than half your work in the public sector (such as for local councils and NHS services). Charities, including community amateur sports clubs, and people who employ a care or support worker can also claim. Since April 2025 there is no bar for employers whose Class 1 liabilities exceed £100,000.
Rule out the single-director exclusion. If your company has only one director, that director must not be the only employee liable for secondary Class 1 National Insurance. HMRC’s single-director guidance spells out what that means in practice: a company with several staff where only the director is paid above the Secondary Threshold is not eligible. Once a second employee or director is paid above it, the company is eligible for the whole tax year. The rule applies only to limited companies.
Leave out the employees who cannot count. GOV.UK lists two: anyone whose earnings fall within the IR35 off-payroll working rules, and anyone you employ for personal, household or domestic work, such as a nanny or gardener, unless they are a care or support worker.
If you are in a group, pick one claimant and one payroll. Connected companies or charities get one allowance between them, and you can claim against only one PAYE scheme. HMRC’s further guidance says to nominate the scheme most likely to have at least £10,500 of employer Class 1 liability in the year. You cannot move a claim to another scheme part-way through a tax year.
Send the claim on your EPS. In your own payroll software, put ‘Yes’ in the Employment Allowance indicator field the next time you send an Employer Payment Summary to HMRC (GOV.UK, how to claim). If your software has no EPS, use Basic PAYE Tools: select the correct name in the ‘Employer’ menu on the home page, select ‘Employment Allowance’, check the eligibility criteria, and send your EPS as normal.
Let payroll offset it each pay run. You pay less employer Class 1 National Insurance each time you run payroll until the allowance is used up or the tax year ends, whichever is sooner (GOV.UK, what you’ll get). HMRC’s further guidance says it covers employer Class 1 only, not Class 1A or Class 1B, and you take it off before deducting anything else such as recoverable Statutory Maternity Pay.
Backdate any year you missed. Claims for past years go on a separate EPS for each year (step 5 again, choosing the earlier year). In Basic PAYE Tools you will also answer ‘Do state aid rules apply?’ and, if they do, pick your business sectors; most businesses that are caught choose ‘Industrial/other’. Two extra conditions for past years, from GOV.UK’s previous-years page: for 2024/25 or earlier, your employer Class 1 liabilities in the year before must have been under £100,000; and a Northern Ireland business making or selling goods or wholesale electricity must stay under the de minimis state aid limit for its sector over 3 years.
Renew it every April. GOV.UK says you need to claim every tax year. Switching payroll software mid-year does not need a new claim.

Deadlines and what happens next

When to claim: at any time in the tax year. The earlier you claim, the sooner you get the allowance. A claim made mid-year can still cover employer Class 1 liabilities from the start of that tax year (HMRC further guidance, section 7).
Backdating limit: up to 4 years after the end of the tax year the allowance is for. HMRC’s own example: a claim for 2022/23, which ended on 5 April 2023, must be made by 5 April 2027. Past-year amounts were £10,500 for 2025/26 and £5,000 for each of 2022/23 to 2024/25.
Confirmation: HMRC does not send a confirmation letter. If your claim is rejected you get an automated message within 5 working days (GOV.UK, after you’ve made a claim). You can see how much you have used in your HMRC online account.
Unused allowance: if you claim late and there is not enough liability left to absorb it, HMRC sets the balance against other PAYE, VAT or Corporation Tax you owe, or refunds it after the tax year ends if you owe nothing. You cannot get a refund of the gap between your total liability and the full £10,500.
Past-year claims in Northern Ireland: if you selected a business sector, HMRC sends a letter confirming the allowance counts as de minimis state aid. Keep it.
Records: keep records showing why you were entitled, how much was used and what it covered, for at least 3 years after the end of the tax year you claimed for.

Common mistakes

Claiming as a sole-director company with no other staff above the threshold. It is the exclusion HMRC writes most about. A second employee paid below the Secondary Threshold does not make you eligible.
Switching the indicator to ‘No’ when the allowance runs out. Do not. GOV.UK says reaching the £10,500 limit, or no longer employing anyone, does not make you ineligible. Selecting ‘No’ mid-year removes the allowance you have already been given for that year.
Two group companies both claiming. Connected companies share one allowance, claimed against one nominated PAYE scheme.
Forgetting to renew in April. The claim does not roll over into the new tax year on its own.

If you claimed wrongly

If you find you were never eligible for the year, stop the claim by selecting ‘No’ in the Employment Allowance indicator on your next EPS. If you are exempt from filing online, use a paper EPS. HMRC’s further guidance (sections 12 and 13) says stopping a claim means no allowance is due that year, so you must repay the employer Class 1 National Insurance the allowance covered. Late payment penalties and interest may follow, depending on whether the rest of your PAYE was paid on time and how many months the allowance was claimed for.

A single-director company that stops qualifying mid-year is treated differently: HMRC’s single-director guidance says it can keep the allowance for that tax year and should stop the claim for the next one.

Worked example

A limited company pays two employees, one on £45,000 and one on £40,000 a year, monthly and evenly, and claims in April 2026. The 2026/27 figures below come from the site’s tax ruleset, which matches HMRC rates and thresholds for employers 2026 to 2027: Secondary Threshold £5,000, employer rate 15%, Employment Allowance £10,500.

	Employer Class 1 NI for the year
Employee on £45,000	(£45,000 - £5,000) x 15% = £6,000
Employee on £40,000	(£40,000 - £5,000) x 15% = £5,250
Total	£11,250, about £937.50 a month

The allowance covers the full employer bill for the first 11 months. That leaves £187.50 of allowance for month 12, so the company pays £750 of employer NI that month. Any later month in the same tax year would be paid in full. Across the year it pays £750 instead of £11,250. This is the same pattern as HMRC’s own example in section 4 of its further guidance.

Payroll software applies the Secondary Threshold per pay period, so real monthly amounts differ by a few pence.

If one of those two people were the company’s only director and the other earned less than £5,000, the company could not claim at all, and the full employer bill would be due.

How to register as an employer and run payroll - setting up the PAYE scheme you will claim against.
Optimum director salary 2026/27 - how the single-director rule changes the best salary for a one-person company.
Employer cost calculator - the full cost of an employee, including employer National Insurance.

Frequently asked questions

Can a one-person limited company claim Employment Allowance?

Not if the company has one director and that director is the only employee liable for employer (secondary) Class 1 National Insurance. HMRC's single-director guidance says the company becomes eligible for the whole tax year once a second employee or director is paid above the Secondary Threshold, for example two directors who both earn above it.

How do I claim Employment Allowance?

Put 'Yes' in the Employment Allowance indicator field the next time your payroll software sends an Employer Payment Summary (EPS) to HMRC. If your software has no EPS, use HMRC's Basic PAYE Tools: choose the employer, select Employment Allowance, check the eligibility criteria and send the EPS as normal. HMRC does not send a confirmation letter.

Can I backdate an Employment Allowance claim?

Yes. HMRC's further guidance says you can claim up to 4 years after the end of the tax year the allowance is for, sending a separate EPS for each past year. Its own example: a claim for 2022/23 must be made by 5 April 2027. For 2024/25 and earlier, your employer Class 1 NI in the previous tax year must have been under £100,000.

Do I need to claim Employment Allowance every year?

Yes. GOV.UK says you need to claim it every tax year, and HMRC's further guidance says you claim for each new tax year by submitting an EPS. You can claim at any point in the year and the allowance can then cover liabilities from the start of that tax year.

What happens if I claimed Employment Allowance when I was not eligible?

Select 'No' in the Employment Allowance indicator on your next EPS. HMRC says stopping a claim means no allowance is due for that year, so you must repay the employer Class 1 NI the allowance covered, and late payment penalties and interest may apply depending on whether the rest of your PAYE was paid on time.