Employment Allowance for a limited company
A limited company can knock up to £10,500 off its employer National Insurance bill through the Employment Allowance for the 2026-27 tax year, but one common company structure is shut out entirely [1]. A company with a single director who is also its only employee cannot claim, a rule that catches a large share of the UK's owner-managed limited companies [2].
With employer National Insurance charged at 15% on earnings above a £5,000 Secondary Threshold [3], the allowance is worth real money to companies that qualify. Around 1,418,000 employers claimed it in the most recent tax year, the overwhelming majority of them small companies with fewer than ten staff [4]. The difficulty is not the claim itself, which is a single payroll flag, but working out whether a particular company is eligible in the first place.
This guide answers the questions limited company directors actually ask: whether the company qualifies, how the single-director rule works, what happens with two directors or two employees, how connected companies share a single allowance, and the precise steps to claim.
Key takeaways
- A limited company can claim up to £10,500 against employer Class 1 National Insurance for the 2026-27 tax year [1].
- A company with one director and no other employee paid above the Secondary Threshold cannot claim [2].
- A second employee or director paid above the £5,000 Secondary Threshold usually restores eligibility [5].
- Companies under common control of over 50% share a single allowance between them [6].
- The allowance cannot be used against Class 1A National Insurance on benefits or against IR35 deemed payments [7].
Can a limited company claim the Employment Allowance?
A limited company qualifies for the Employment Allowance if it has an employer secondary Class 1 National Insurance liability, which means it must pay at least one person, whether an employee or a director, above the £5,000 Secondary Threshold [8]. Being a company is not a barrier in itself. Most trading companies with staff on the payroll qualify without difficulty.
The allowance is worth £10,500 for the 2026-27 tax year, having doubled from £5,000 on 6 April 2025 [9]. The same reform removed the previous £100,000 cap that had excluded companies with a large employer National Insurance bill in the prior tax year, so larger companies are now eligible too [9]. The relief offsets employer National Insurance only, month by month, until the £10,500 is used up [1].
What the allowance cannot be used against
The allowance is narrower than it first appears. It applies only to secondary Class 1 National Insurance on wages. It cannot be used against Class 1A National Insurance, the employer charge on most benefits in kind, and it cannot be set against the employer National Insurance arising on IR35 deemed payments where a company works through off-payroll rules [7]. A personal service company caught by IR35 therefore cannot shelter the deemed payment with the allowance, a point that surprises many contractors. Understanding the wider employer National Insurance charge helps a director see exactly which part of the bill the allowance touches.
The single-director rule explained
The rule that excludes the most companies is the single-director exclusion. A company cannot claim the Employment Allowance if it has just one director and that director is the only employee whose earnings are liable to secondary Class 1 National Insurance [2]. The policy intent is to stop the relief flowing to companies that exist mainly as a one-person tax wrapper, rather than to genuine employers.
The critical word is 'only'. It is not the number of people on the payroll that decides eligibility, it is how many are paid above the Secondary Threshold. A company can have several people on the books, but if the sole director is the only one paid above £5,000, the company still fails the test [5].
How a second person restores eligibility
The exclusion lifts as soon as a second person is paid above the Secondary Threshold for at least part of the tax year. That second person can be another employee or a second director [5]. The table below sets out the common company structures and whether each can claim.
| Company structure | Paid above £5,000 Secondary Threshold | Can claim? |
|---|---|---|
| One director, no other staff | Director only | No |
| One director, one employee below threshold | Director only | No |
| One director, one employee above threshold | Director and employee | Yes |
| Two directors, both above threshold | Both directors | Yes |
| One director below threshold, one employee above | Employee only | Yes |
HMRC guidance confirms that a company with two paid directors both earning above the Secondary Threshold is eligible for the whole tax year [2]. It also confirms the reverse: a company where the director's pay is below the threshold but another employee earns above it can claim, because the allowance can be set against the employee's employer National Insurance [5].
The two-director salary strategy
Many owner-managed companies with a husband-and-wife or two-founder board respond by paying both directors a salary above the Secondary Threshold. This makes the company eligible and lets the allowance offset the employer National Insurance on both salaries [2]. The arrangement has to be genuine: the second director must actually hold office and be paid a real salary through the payroll, reported through Real Time Information like any other. Modern SME payroll software records each director's earnings against the Secondary Threshold automatically, which matters because directors are assessed for National Insurance on an annual basis even when paid monthly [10].
Connected companies share one allowance
A director who runs more than one company cannot multiply the allowance. If a person holds a majority, over 50%, of the share capital or voting rights in more than one company at the start of the tax year, those companies are connected, and only one of them can claim the Employment Allowance for that year [6]. A group of five companies under common control still shares a single £10,500, not five separate allowances.
The definition of control follows the Corporation Tax Act 2010, so companies in the same group, or under the control of the same person, are connected for this purpose [6]. Where companies are connected, the group chooses which company claims. The sensible choice is the company expected to generate the highest employer National Insurance liability, because any unused portion of the allowance cannot be transferred to a connected company or refunded [11]. An accountant running payroll across a group of client companies typically manages this allocation from a single multi-client payroll dashboard so the allowance lands on the right entity every April.
Contractors and personal service companies
Contractors operating through their own limited company are among the most likely to be caught by the single-director exclusion, because a typical personal service company has one director who is also the only fee earner on the payroll [2]. Where that director is the only person paid above the Secondary Threshold, the company cannot claim the allowance, regardless of turnover.
The position is tighter still for contracts inside IR35. Where the off-payroll working rules apply and the company receives a deemed payment, the employer National Insurance on that deemed payment cannot be reduced by the Employment Allowance [7]. A contractor who takes on a genuinely employed second person paid above the threshold can restore eligibility for the ordinary payroll, but the deemed payment itself stays outside the relief. Contractors weighing up how their engagements are treated should read a status assessment alongside the allowance rules, since the two questions interact.
Worked examples for common company setups
The rules are easier to see in figures. Each example below assumes employer National Insurance at 15% on earnings above the £5,000 Secondary Threshold for the 2026-27 tax year [3].
Take a company with one director on a £12,570 salary and no other staff. The director is the only person above the Secondary Threshold, so the company cannot claim, and it pays employer National Insurance of around £1,136 on the salary above £5,000 with no relief [2]. Adding a second director on the same £12,570 salary changes the position entirely. Now two people sit above the threshold, the company qualifies, and the £10,500 allowance wipes out the whole employer National Insurance bill on both salaries [5].
A trading company with a director and four employees on ordinary salaries qualifies without any planning, because several people are paid above the Secondary Threshold [8]. Its employer National Insurance for the year might be £18,000, of which the first £10,500 is relieved by the allowance, leaving £7,500 to pay [1]. The allowance behaves as a flat reduction on a larger bill rather than eliminating it.
The order the allowance is used
The allowance is applied against the company's total secondary Class 1 National Insurance liability month by month, from the start of the tax year, until the £10,500 is exhausted [1]. A company with a heavy payroll may use the full allowance within the first two or three months and then pay employer National Insurance in full for the rest of the year. A company with a light payroll may spread the relief across all twelve months and never pay employer National Insurance at all. Either way, any part of the £10,500 that is not used by the end of the tax year is lost. It cannot be refunded, carried into the next year, or transferred to a connected company [11].
How a limited company claims the allowance
The claim runs through payroll. A company, or its agent, sets the Employment Allowance indicator to 'Yes' the next time it sends an Employer Payment Summary to HMRC [12]. If the company's software has no Employer Payment Summary field, HMRC's Basic PAYE Tools can send one [13]. There is no separate form and no approval wait: the allowance starts reducing the employer National Insurance bill from the point the claim is filed.
Once made, the claim carries forward automatically to the next tax year until the company tells HMRC it is no longer eligible, or HMRC decides it is not [8]. A company still needs to review eligibility each year, particularly if its board or staffing changes, because a company that drops back to a single paid director loses the entitlement mid-year [5].
Claiming for earlier years
A company that qualified in the past but never claimed can go back up to four tax years, submitting a separate Employer Payment Summary for each year, provided it was eligible and did not already claim [14]. For a company that only recently added a second salaried director, this can recover several thousand pounds of overpaid employer National Insurance. Software carrying the HMRC Recognised badge transmits the indicator with the routine payroll cycle, and an HMRC-recognised payroll API can set the flag programmatically for platforms running payroll across many companies at once.
Conclusion
For most trading limited companies with staff on the payroll, the Employment Allowance is a straightforward £10,500 saving claimed with a single flag. The one structure that fails is the classic one-person company where the sole director is the only earner above the Secondary Threshold, and the fix, where it is commercially genuine, is to bring a second person above that threshold. Groups under common control get one allowance between them and should place it on the company that will use it in full.
As the higher employer National Insurance rate settles in, the gap between a company that claims and one that overlooks the relief widens every payroll. A limited company that checks its structure against the single-director test, reviews eligibility each April, and confirms its payroll actually transmits the claim will capture the full value the allowance was built to deliver. Companies weighing up the wider cost of running compliant payroll can compare that against small business payroll options built around the allowance.
Frequently asked questions
Can a one-person limited company claim the Employment Allowance?
No, not where the single director is the only employee paid above the Secondary Threshold. A company with just one director and no other staff earning above £5,000 is excluded from the Employment Allowance [2]. The exclusion is designed to keep the relief with genuine employers rather than one-person companies, and it can only be lifted by paying a second person above the Secondary Threshold [5].
Does a company with two directors qualify for the Employment Allowance?
Usually yes, provided both directors are paid above the Secondary Threshold. HMRC guidance confirms a company with two paid directors, both earning above the threshold, is eligible for the whole tax year [2]. If only one director is paid above £5,000 and there are no other qualifying employees, the company falls back into the single-director exclusion and cannot claim [5].
Can two companies with the same owner each claim £10,500?
No. Companies under common control, where one person holds more than 50% of the shares or voting rights in each, are connected and share a single Employment Allowance [6]. The group decides which company claims the one allowance, and any unused amount cannot be moved to the connected company or refunded [11].
Can the Employment Allowance reduce Class 1A National Insurance on benefits?
No. The allowance offsets secondary Class 1 National Insurance on wages only. It cannot be used against Class 1A National Insurance, which is the employer charge on most benefits in kind, and it cannot be set against employer National Insurance on IR35 deemed payments [7]. A company with a large benefits bill still pays its Class 1A liability in full [8].
