# Can a Sole Director Claim Employment Allowance? (2026/27)

Last updated: 19 October 2026

No. A limited company cannot claim Employment Allowance if it has one director and that director is the only employee paid above the secondary threshold, which is £5,000 a year for 2026/27. The company can claim up to £10,500 off its employer National Insurance as soon as it pays one other employee above that threshold.

Last updated: October 2026.

Employment Allowance cuts a company's employer National Insurance bill by up to £10,500 a year. A one-person limited company usually cannot have it. This guide sets out the rule, the exact 2026/27 figures, the one change that makes a company eligible and how to claim the allowance through payroll.

## Can a sole director claim Employment Allowance?

In the usual case, no. [GOV.UK says](https://www.gov.uk/claim-employment-allowance/eligibility) that if your company has only one director, they must not be the only employee liable for secondary Class 1 National Insurance. HMRC's [single-director guidance](https://www.gov.uk/government/publications/employment-allowance-more-detailed-guidance/single-director-companies-and-employment-allowance-further-employer-guidance) puts it in plainer terms. A limited company cannot claim if it has just one director and that director is the only employee paid above the secondary threshold.

Three points follow from that wording:

- **It applies to limited companies only.** HMRC says that if you are self-employed, the rule does not apply to you. A sole trader who employs people can claim.
- **The test is pay, not headcount.** A company with one director and four staff still cannot claim if all four are paid below the secondary threshold.
- **It has applied since 6 April 2016.** HMRC's National Insurance manual dates the rule to that day.

So the typical contractor or consultant company, where the owner is the only paid person, cannot claim. The same applies to a company where the owner is paid above the threshold and everyone else earns less.

## What are the Employment Allowance figures for 2026/27?

These are the figures from [HMRC's 2026 to 2027 employer rates](https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027).

| Item | 2026/27 figure |
|---|---|
| Employment Allowance | £10,500 per tax year |
| Secondary threshold (employer NI starts above this) | £5,000 a year, £417 a month, £96 a week |
| Employer NI rate on pay above the secondary threshold | 15% |
| Upper secondary threshold for under 21s, apprentices under 25 and veterans | £50,270 a year |
| National Minimum Wage, aged 21 and over (from 1 April 2026) | £12.71 an hour |

The tax year runs from 6 April 2026 to 5 April 2027.

Employment Allowance reduces your employer Class 1 National Insurance each time you run payroll, until the £10,500 has gone or the tax year ends. It offsets employer Class 1 NI only. It does not touch the employee's own National Insurance or Income Tax.

Any allowance you do not use is lost. GOV.UK says you cannot claim a refund for the difference between your Class 1 bill and the full allowance. A company with an employer NI bill of £2,600 gets £2,600 off, not £10,500.

## Why does a one-person company not qualify?

The block sits in the National Insurance Contributions Act 2014, section 2(4A). HMRC's [National Insurance manual](https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim06545) explains how it reads the section. If a company has just one director and only incurs secondary Class 1 National Insurance on that director's pay, it does not qualify. The company needs employer NI to arise on at least one other person's pay before it can claim. That other person can be a second director.

HMRC's manual and guidance give worked set-ups. Here they are in one table.

| Set-up | Can the company claim? |
|---|---|
| One director, no other employees | No |
| One director paid above £5,000, four employees all paid below £5,000 | No |
| One director paid above £5,000, one employee paid above £5,000 | Yes, against both people's employer NI |
| One director paid below £5,000, one employee paid above £5,000 | Yes |
| Two directors, only one paid above £5,000, no other staff | No |
| Two directors, both paid above £5,000 | Yes, for the whole tax year |
| Sole director at 6 April, who takes on an employee paid above £5,000 in June | Yes, for the whole tax year |

Sources: [HMRC eligibility guidance, section 14](https://www.gov.uk/government/publications/employment-allowance-more-detailed-guidance/eligibility-for-employment-allowance-further-employer-guidance), [HMRC single-director guidance](https://www.gov.uk/government/publications/employment-allowance-more-detailed-guidance/single-director-companies-and-employment-allowance-further-employer-guidance) and [NIM06545](https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim06545).

## What counts as a second employee?

The second person must be someone the company pays above the secondary threshold. HMRC's guidance says the decisive factor is that the additional employees are paid above that threshold. These are the rules in practice:

1. **The pay must be above the threshold for the pay period.** That means more than £96 a week or £417 a month. HMRC's guidance lists seasonal workers who earn above the threshold in a week as qualifying.
2. **A second director counts.** HMRC's examples include husband and wife directors who both earn above the threshold.
3. **A director must be paid above the annual threshold.** If the directorship started part way through the tax year, the test is the pro-rata equivalent.
4. **The person must be a real employee on your payroll.** Their pay must at least meet the National Minimum Wage, which is £12.71 an hour from 1 April 2026 for anyone aged 21 or over.
5. **Some pay does not count in the claim.** You cannot include anyone whose earnings fall within the IR35 off-payroll rules. You also cannot include someone employed for personal or household work, such as a nanny or gardener, unless they are a carer or support worker.

There is one grey area. The employer NI rate is 0% on pay up to £50,270 for employees under 21, for apprentices under 25 and for veterans. Those hires are paid above £5,000 but create no employer NI to relieve. HMRC's guidance talks about pay above the threshold. Its manual talks about earnings that create a secondary Class 1 liability. Check with HMRC or your accountant before you rely on a hire in any of these groups.

On the family question: a spouse can be the second employee if they do real work and the pay fits the work. Our guide to [employing your spouse in your limited company](/blog/employing-spouse-limited-company-uk) covers the practical side.

## Worked example: one director, with and without a second employee

Take a company where the director draws a £12,570 salary in 2026/27. In the first case nobody else is paid. In the second case the company hires one part-time employee on £15,000 a year.

| | Director only | Director plus employee |
|---|---|---|
| Director's salary | £12,570 | £12,570 |
| Employee's salary | None | £15,000 |
| Employer NI on director: (£12,570 - £5,000) × 15% | £1,135.50 | £1,135.50 |
| Employer NI on employee: (£15,000 - £5,000) × 15% | None | £1,500.00 |
| Employer NI before the allowance | £1,135.50 | £2,635.50 |
| Employment Allowance used | £0 | £2,635.50 |
| Employer NI paid to HMRC | £1,135.50 | £0 |

In the second column the allowance wipes out the whole bill, including the £1,135.50 the company pays on the director's salary in the first column. The company still carries the employee's £15,000 salary, which is a staff cost if the work is real. Of the £10,500 allowance, £7,864.50 goes unused and is lost.

The employee's own deductions are separate. At £15,000 they pay 8% employee National Insurance on the £2,430 above £12,570, which is £194.40. The allowance does not cover that.

These figures use the annual thresholds. Payroll software works month by month with the £417 monthly threshold, so its answer can differ from this arithmetic by a few pounds.

Hire for the work. Do not hire to chase the allowance. If the role is not real, expect HMRC to question both the pay and the claim.

## What if you hire someone part way through the year?

The company can claim for the whole tax year, not just the months after the hire. HMRC's example is a company with one paid director and no staff. It cannot claim from April. In June the director takes on an employee paid above the secondary threshold. From then the company is eligible for the tax year.

You claim in your next Employer Payment Summary. GOV.UK says you can start using the allowance as soon as you submit the claim. If you claim late and do not use the allowance against your Class 1 bill, ask HMRC to apply the unused amount to tax or National Insurance you owe, or to refund it after the year ends if you owe nothing.

Two other changes during the year:

- **The second employee leaves.** HMRC's manual says the company may keep claiming against the director's employer NI until the allowance is used up or the tax year ends. It cannot claim in the next tax year until it again pays an employee other than the director at a level that creates a liability.
- **Several employees become one.** If a company had more than one person above the threshold and the director later becomes the only one, it can still claim for that tax year. It should stop the claim for the following year, unless a further employee is taken on and paid above the threshold.

## Do connected companies each get an allowance?

No. Only one company in a connected group can claim. HMRC says companies are connected if one company has control of another, or if they are under the control of the same person or people. Two companies that you control are therefore connected, even if neither owns the other.

Where there are connected companies, one company is entitled to claim. The allowance is used against one PAYE scheme only, however many PAYE schemes the group runs. The group chooses which PAYE scheme gets it.

This matters for founders with more than one company. A trading company with a director and an employee can claim. A second company you own, with only you paid in it, cannot claim a second allowance. It would fail the single-director test anyway.

## How do you claim Employment Allowance through payroll?

You claim through your payroll software or HMRC's Basic PAYE Tools by telling HMRC on an Employer Payment Summary, known as an EPS. Here is the process from [GOV.UK](https://www.gov.uk/claim-employment-allowance/how-to-claim).

1. Check that the company passes the single-director test and that no connected company is claiming already.
2. Open your payroll software and find the field called "Employment Allowance indicator" on the EPS.
3. Put "Yes" in that field the next time you send an EPS to HMRC.
4. Send the EPS. Your payroll then deducts the allowance from your employer NI each time you run payroll, until it runs out or the tax year ends.
5. Check your HMRC online account to see how much allowance you have used.
6. Repeat the claim every tax year. GOV.UK says you need to claim Employment Allowance every tax year.

If your software has no EPS field, use HMRC's Basic PAYE Tools. Select your employer, select "Employment Allowance", check the eligibility criteria, then send your EPS as normal.

HMRC does not send a confirmation letter. If a claim is rejected, you get an automated message within 5 working days.

## Can you claim Employment Allowance for earlier years?

Possibly. GOV.UK says you may be able to claim for the previous 4 tax years, back to 2021 to 2022, if you were a business that qualified. The single-director rule applied in those years too.

The allowance was £10,500 for 2025 to 2026 and £5,000 for each of 2022 to 2023, 2023 to 2024 and 2024 to 2025. For 2024 to 2025 and earlier, your employer Class 1 liability had to be under £100,000 the previous year. For 2025 to 2026 onwards there is no such limit.

## What if you claimed and should not have?

Stop the claim. Select "No" in the Employment Allowance indicator field and send an EPS. You then pay the full employer Class 1 National Insurance without deducting the allowance.

If you stop before 5 April, GOV.UK says any allowance you have been given that year is removed. You then owe the employer NI it covered. This is the same step HMRC tells a company to take if its circumstances change and it no longer qualifies at the start of a tax year.

Do not select "No" just because you have used up the £10,500. That does not make you ineligible.

## What are the common mistakes with Employment Allowance?

Four mistakes come up again and again:

1. **Claiming when only the director is paid above £5,000.** The company is not eligible. HMRC tells these companies to select "No" in the Employment Allowance indicator field.
2. **Forgetting to claim again.** You need to claim every tax year. A claim for 2025/26 does not carry into 2026/27.
3. **Both connected companies claiming.** Only one company in a connected group is entitled to the allowance, and it is used against one PAYE scheme.
4. **Switching the claim off because the £10,500 has run out.** GOV.UK says reaching the limit does not make you ineligible. Leave the indicator on.

## Does Employment Allowance change a sole director's best salary?

It can. Without the allowance, a salary above £5,000 attracts employer NI at 15%. With the allowance, that cost can fall to nothing until the bill passes £10,500. Our guide to the [optimal director's salary for 2026/27](/blog/optimal-directors-salary-2026-27) works through the numbers for a company without the allowance. For the salary side of a payroll, see our [payroll guide](/payroll-guide). To work out the employer NI on any salary, use the [employer NI calculator](/tools/employer-ni-calculator).

## How AccountsOS helps

If you run payroll in AccountsOS, Finn prepares the figures for the director and any employees, and can check each person's pay against the £5,000 threshold when you ask. The Employer Payment Summary itself still goes to HMRC through your payroll software or your agent, because AccountsOS does not submit payroll filings to HMRC yet.

## Frequently asked questions

### Can a sole director claim Employment Allowance?

Not when the director is the only employee paid above the secondary threshold. A limited company with one director needs a second person on payroll who is paid above £5,000 a year (2026/27) before it can claim.

### How much is Employment Allowance in 2026/27?

£10,500 per tax year, according to HMRC's 2026 to 2027 employer rates. It reduces your employer Class 1 National Insurance. Any amount you do not use is lost.

### What is the secondary threshold for 2026/27?

£5,000 a year, £417 a month or £96 a week. Employer National Insurance at 15% applies to pay above that level.

### Does the second employee have to be paid above £5,000?

Yes. HMRC's guidance says the additional employee must be paid above the secondary threshold. An employee paid below it does not help the company qualify.

### Can I employ my spouse so the company qualifies for Employment Allowance?

Yes, if your spouse is a genuine employee paid above the secondary threshold. The work must be real and the pay must fit the work. HMRC's guidance also lists husband and wife directors who both earn above the threshold as qualifying.

### Can two companies I own each claim Employment Allowance?

No. Companies under the control of the same person or people are connected, and only one company in the group can claim. The group chooses which PAYE scheme the allowance is used against.

### How do I claim Employment Allowance?

Put "Yes" in the Employment Allowance indicator field on your next Employer Payment Summary, through payroll software or HMRC's Basic PAYE Tools. You must claim again every tax year.

### What happens if my second employee leaves?

The company can keep claiming against the director's employer NI until the allowance is used up or the tax year ends. It cannot claim in the next tax year until it again pays another employee above the secondary threshold.

## Sources

- [GOV.UK: Employment Allowance](https://www.gov.uk/claim-employment-allowance)
- [GOV.UK: Employment Allowance, check if you're eligible](https://www.gov.uk/claim-employment-allowance/eligibility)
- [GOV.UK: Employment Allowance, how to claim](https://www.gov.uk/claim-employment-allowance/how-to-claim)
- [GOV.UK: Employment Allowance, when to claim](https://www.gov.uk/claim-employment-allowance/when-to-claim)
- [GOV.UK: Single-director companies and Employment Allowance, further guidance](https://www.gov.uk/government/publications/employment-allowance-more-detailed-guidance/single-director-companies-and-employment-allowance-further-employer-guidance)
- [GOV.UK: Eligibility for Employment Allowance, further employer guidance](https://www.gov.uk/government/publications/employment-allowance-more-detailed-guidance/eligibility-for-employment-allowance-further-employer-guidance)
- [GOV.UK: HMRC National Insurance manual, NIM06545](https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim06545)
- [GOV.UK: Rates and thresholds for employers 2026 to 2027](https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027)

This guide is general information, not tax advice. Check your own position with an accountant or HMRC.