Employment Allowance Cap Scrapped for 2026/27 — Is Your Business Now Eligible to Save £10,500?
A quiet but valuable change to payroll rules could be worth thousands to small employers this year — if you know to claim it.
Employment Allowance Cap Scrapped for 2026/27 — Is Your Business Now Eligible to Save £10,500?
A quiet but valuable change to payroll rules could be worth thousands to small employers this year — if you know to claim it.
What's changed
The Employment Allowance lets eligible businesses reduce their annual employer National Insurance bill by up to £10,500 for 2026/27. Previously, businesses with an employer NI bill of £100,000 or more in the prior tax year were excluded. That £100,000 eligibility cap has now been removed, opening the allowance to a wider range of growing businesses that previously lost access as they scaled up their payroll.
This matters more than usual in 2026/27, because the employer NIC rate stands at 15% on earnings above £5,000 — a level that has significantly increased the cost of employing staff for many small and medium businesses since the rate and threshold changes took effect.
Who qualifies
You can generally claim if:
- You employ at least one person earning above the Class 1 National Insurance secondary threshold, and
- That employee is not solely a director, and
- Your business isn't excluded on public sector or other specific grounds.
Businesses whose only employee is a director earning above the threshold remain ineligible — the allowance is aimed at businesses genuinely employing staff, not one-person director-only companies.
Checklist: claiming the Employment Allowance
- Check last year's employer NI bill — if it was previously £100,000 or more and stopped you claiming, re-check eligibility now the cap is gone.
- Confirm you have at least one qualifying non-director employee on payroll above the secondary threshold.
- Claim through your payroll software or via HMRC's Basic PAYE Tools — this is usually a one-off toggle each tax year, not an automatic renewal.
- Backdate where possible — the allowance can typically be claimed for the current tax year and, in some circumstances, backdated up to four previous tax years if you were eligible but didn't claim.
- Review this every tax year, not just once — eligibility and the allowance amount can both change at each Budget.
- Speak to your accountant or payroll provider if you run multiple connected companies, as group rules affect how the £10,500 cap is shared.
International comparison
Employer-side payroll tax relief for small business exists in various forms internationally — the US offers the Small Business Health Care Tax Credit for qualifying employers, while Australia's payroll tax thresholds vary by state and exempt many small employers entirely below a wage threshold.
Key Numbers
- Up to £10,500 annual Employment Allowance for 2026/27
- £100,000 eligibility cap removed for 2026/27
- 15% employer NIC rate applies above £5,000 in earnings
Sources
Educational content only — not financial advice.