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The allowance is £10,500
The Employment Allowance is £10,500. It reduces your employer Class 1 National Insurance bill by up to that amount across the tax year. It is not a cash payment and it is not a reduction in what your employees pay.
It also stopped being restricted to smaller employers. The old £100,000 cap on the previous year employer National Insurance bill was removed, so employers who were previously excluded on size grounds should check again.
How it actually works
It is not spread evenly. It offsets your employer National Insurance as it arises, month by month, until it is used up. A business with a large payroll may exhaust the whole £10,500 in the first month or two of the tax year and pay normally thereafter. A small employer may find it covers the entire year.
You have to claim it. It is not applied automatically. You claim through your payroll software via the Employer Payment Summary, and you need to claim it each tax year, not once. Every year we see businesses that simply never ticked the box.
If you missed it, you can generally claim back for the previous four tax years, which for some employers is a meaningful sum sitting unclaimed.
Who cannot claim it
This is where people come unstuck. The one that catches most owner managed companies: if you are a sole director with no other employees, and you are the only person on the payroll earning above the secondary threshold, you cannot claim it.
That rule alone changes the salary versus dividends arithmetic for a great many one person companies, and it is why the optimal director salary is not the same for a single director company as for one with a second employee.
Also excluded: public sector work in the main, and personal or domestic staff such as a nanny or gardener, with an exception for care and support workers.
Connected companies get one allowance between them, not one each. If you control more than one company, you must pick which one claims.
What to do
Check your payroll is actually claiming it. Look at your Employer Payment Summary, not your intentions.
If you have two directors, or a director and an employee both paid above the secondary threshold, you are likely eligible where a single director company would not be.
If you have never claimed and think you were eligible, look back four years.
The £10,500 figure reflects current HMRC guidance as at July 2026. If you are unsure whether your company qualifies, particularly as a single director, get in touch.