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The short answer
Employment Allowance reduces a UK employer's secondary Class 1 National Insurance bill by up to £10,500 a tax year. A company whose only employee paying above the secondary threshold is its single director cannot claim; once another employee is also liable for employer NI, it can. Connected companies get one allowance between them.
Employer National Insurance is a cost on top of salaries, charged on pay above a low threshold. For a small company taking on its first staff, Employment Allowance can cancel most or all of it. The difficulty is eligibility: the rule most Nigerian founders run into is the one about single-director companies.
The figures for 2026 to 2027
HMRC's rates and thresholds for employers, updated 1 September 2026, give:
- Employer (secondary) Class 1 NI rate
- 15%
- Secondary threshold
- £96 a week, £417 a month, £5,000 a year
- Employment Allowance
- £10,500
The allowance is set against employer NI only. It does not reduce the employee's own NI, income tax or pension contributions.
Who can claim
GOV.UK's eligibility page lists who can claim for the current tax year:
- Businesses, and charities including community amateur sports clubs.
- Employers who do less than half their work in the public sector.
- People who employ a care or support worker.
The same page excludes from a claim anyone whose earnings fall within the IR35 off-payroll rules, and anyone employed for personal, household or domestic work, such as a nanny or gardener, unless they are a carer or support worker.
The single-director rule
GOV.UK's wording is that, for a single-director company, the director cannot be the only employee liable for secondary Class 1 National Insurance. In practice:
- You are the only person on payroll. No claim, whatever your salary.
- You and one employee whose pay stays under the £5,000 secondary threshold. Only you are liable for employer NI, so the rule still bites on the plain reading of the page.
- You and at least one employee paid above the secondary threshold. More than one person is liable for employer NI, so the company can claim.
This is why paying a spouse or relative a token salary does not by itself open the allowance, and why any family pay has to reflect real work; see paying your spouse a salary. Check GOV.UK's full guidance or ask your payroll provider if your set-up is unusual.
Worked example
Example only, 2026 to 2027 rates. A company employs two staff on £30,000 a year each, plus a director on £12,570.
| Person | Pay | Pay above £5,000 | Employer NI at 15% |
|---|---|---|---|
| Employee A | £30,000 | £25,000 | £3,750.00 |
| Employee B | £30,000 | £25,000 | £3,750.00 |
| Director | £12,570 | £7,570 | £1,135.50 |
| Total | £8,635.50 |
Total employer NI is £8,635.50, below the £10,500 allowance, so the company pays no employer NI for the year once the allowance is applied. Remove the two employees and the director's £1,135.50 is payable in full, because the director would be the only person liable.
When the payroll outgrows the allowance
Example only. A company with four employees on £35,000 each has employer NI of £4,500 per person ((£35,000 − £5,000) × 15%), or £18,000 in total. The allowance takes off £10,500, leaving £7,500 to pay over the year. A company with a single employee on £20,000 has employer NI of £2,250 ((£20,000 − £5,000) × 15%), which the allowance covers in full, provided the single-director rule does not block the claim.
Those two cases show why the allowance matters most to the smallest employers. For a business with one to three staff on ordinary salaries, it can mean no employer NI at all; for a larger team it becomes a fixed discount on a growing bill. Budget for the full employer NI when you plan a hire, then treat the allowance as a saving once you know you are eligible.
Staff outside the UK
Employment Allowance is a reduction in UK employer National Insurance, so it only matters for people on your UK payroll. A team member employed in Lagos through a Nigerian company is under Nigerian payroll rules instead; the Nigerian side is covered in hiring your first employee in Nigeria.
Connected companies and payrolls
Companies or charities in a group, which GOV.UK calls connected companies, can claim only once between them: only one company in the group can take the allowance. You can also claim against only one payroll. A founder with a trading company and a property company, both employing staff, should decide which one claims.
How the claim is made
Employment Allowance is claimed through your payroll software, which reports the claim to HMRC. Set it up once you have registered as an employer and run your first payroll; the order of steps is in setting up PAYE for your first employee. GOV.UK keeps separate rules for past tax years if you are claiming late.
What to check first
- How many people on payroll earn above £5,000 a year.
- Whether any worker is inside IR35 or is a domestic worker.
- Whether another company you control already claims.
- That your payroll software has the claim switched on for this tax year.
These are points of information, not tax advice.
Where Pryme fits
A Pryme Business Account comes with Finance and Compliance agents that prepare work for you to approve; nothing above your set ceiling moves without a person's approval and actions are recorded. Paying staff from a GBP balance while holding NGN for a Nigerian team is covered on /p/payroll and /p/b-multicurrency.
Questions people ask
How much is Employment Allowance for 2026/27?
HMRC's employer rates page gives £10,500 for 2026 to 2027, set against employer Class 1 National Insurance.
Can a one-person limited company claim Employment Allowance?
Not if the single director is the only employee liable for employer National Insurance, according to GOV.UK's eligibility page.
If I hire my spouse can I claim Employment Allowance?
Only if your spouse, or another employee, is also liable for employer NI, which in practice means pay above the £5,000 secondary threshold. Pay must reflect the work done.
Can two companies I own both claim?
No. Connected companies can claim only once, and only against one payroll.
Sources
- GOV.UK: Employment Allowance: eligibility (updated 21 Oct 2026) · accessed Oct 2026
- GOV.UK: Rates and thresholds for employers 2026 to 2027 (updated 1 Sep 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.