Employment Allowance: reduce employer National Insurance before the PAYE bank payment

Employment Allowance reduces eligible employers' secondary Class 1 National Insurance liability before the employer pays HMRC. For 2026 to 2027 the maximum allowance is £10,500, so the banking effect can be significant for smaller employers.

The maximum allowance remains £10,500 for 2026 to 2027

HMRC's current employer rates say Employment Allowance is up to £10,500 for the 2026 to 2027 tax year. It offsets eligible employer secondary Class 1 National Insurance as the liability arises.

The allowance is not a cash grant paid into the bank account. It reduces what the employer has to send to HMRC. Finance should therefore see the benefit as a lower PAYE liability rather than expect a separate government payment.

Claim through an Employer Payment Summary

GOV.UK says employers claim Employment Allowance through payroll software by submitting an EPS and confirming eligibility. HMRC's Basic PAYE Tools can also be used for the claim where appropriate.

Keep the claim confirmation with payroll records and ensure the payroll system applies the allowance to the correct employer NIC liability before the monthly or quarterly HMRC payment is calculated.

The old £100,000 prior-year NIC cap no longer blocks claims from 2025 to 2026 onward

Government changes removed the previous rule that prevented employers with more than £100,000 of secondary Class 1 NIC in the prior year from claiming. Current guidance says eligible businesses and charities can claim regardless of that old liability cap.

Other restrictions still apply, including rules for public-sector work and connected employers. Check eligibility annually rather than assuming the business qualifies solely because the old cap disappeared.

One business with multiple PAYE schemes gets only one allowance

HMRC's detailed 2026 guidance says a business or charity can claim only one Employment Allowance even if it operates multiple PAYE schemes. The employer nominates the scheme against which the allowance is used.

Choose a scheme expected to have enough employer NIC to use the full allowance. HMRC says an existing claim cannot simply be moved to another PAYE scheme during the tax year.

The allowance is used only as employer NIC liability arises

HMRC says the amount used in each payment period is limited to the employer secondary Class 1 NIC liability for that period until the £10,500 annual maximum is exhausted.

If monthly employer NIC is £1,050, the allowance can cover ten months and the company then resumes paying employer NIC for months 11 and 12. Cash forecasting should show when the HMRC payment increases again.

Reconcile payroll tax before making the bank payment

Start with PAYE tax, employee NIC, employer NIC and other payroll liabilities, then subtract the Employment Allowance actually available for that period. The resulting net figure feeds the HMRC payment.

Do not deduct £10,500 in one lump from the first PAYE bill if the employer NIC has not yet arisen. Keep a year-to-date schedule showing allowance claimed, used and remaining.

Worked example: if employer Class 1 NIC is £1,400 each month, the business can use £1,400 of Employment Allowance for each of the first seven months and £700 in month eight, exhausting the £10,500 maximum. From then on, the full employer NIC becomes payable again. Treasury should forecast that step-up before it arrives.

Connected companies need particular care because only one allowance may be available under the connection rules. Finance should document which entity claims and which PAYE scheme receives the relief rather than allowing several payroll teams to assume they each have £10,500.

Keep the EPS claim and eligibility decision in the annual payroll file. If HMRC later challenges the claim, the bank-payment history alone cannot explain why lower employer NIC was sent. The supporting eligibility analysis matters.

When the allowance is fully used, add a visible payroll-system alert for the first month in which employer NIC becomes payable again in full. This prevents treasury from assuming the lower PAYE pattern will continue through year end. A business growing quickly can otherwise experience a sharp HMRC cash increase at the same time wages are rising.

If the business stops being eligible mid-year, HMRC guidance says stopping the claim can remove allowance already given for the year and create an additional NIC amount to pay. Treat any eligibility change as a tax cash event and recalculate the year-to-date bank requirement before the next PAYE deadline.