This article explains two National Insurance reliefs that UK employers handle through payroll for the 2026 to 2027 tax year: the Employment Allowance, which reduces employer National Insurance, and Small Employers' Relief, which lets smaller employers recover more of their statutory parental and bereavement payments. Both are claimed through the Employer Payment Submission (EPS). A companion article covers the Apprenticeship Levy.
What is the Employment Allowance and how much is it?
The Employment Allowance is a reduction in the employer (secondary) Class 1 National Insurance you pay to HMRC. It is not a cash payment or refund: it lets you keep back a portion of the secondary Class 1 National Insurance you would otherwise owe, until the allowance is fully used for the year. For 2026 to 2027 the allowance is worth up to £10,500. You claim against your actual secondary Class 1 liability, so if your total employer National Insurance for the year is less than £10,500 you only benefit by the smaller amount; the allowance cannot create a repayment beyond the National Insurance you have incurred. It only reduces employer secondary Class 1 National Insurance and does not affect employee contributions, income tax, or Class 1A National Insurance on benefits.
Who can claim the Employment Allowance?
You can claim for the current tax year if you are a business or charity (including a community amateur sports club) that pays employer Class 1 National Insurance, and you do less than half of your work in the public sector. From April 2025 the previous restriction that prevented employers with secondary Class 1 liabilities above £100,000 in the prior year from claiming was removed, so larger employers can now claim too. You can also claim if you employ a care or support worker. The allowance is claimed against a single PAYE scheme, so where you run more than one payroll you choose one to set it against.
Who cannot claim the Employment Allowance?
Several situations prevent a claim. You cannot claim if you are a limited company whose only employee paid above the secondary threshold is also a director, because at least one other person must be liable for secondary Class 1 National Insurance. So a one-person company where the sole director takes a salary above the secondary threshold and has no other staff is not eligible; eligibility is usually restored once a second employee or director is paid above the secondary threshold during the year. You also cannot claim if you do more than half of your work in or for the public sector (unless you are a charity), or if you are part of a group of connected companies or charities and another company in the group is already claiming, because only one employer in the group may claim.
Which employees cannot be included in a claim?
Even when your business is eligible overall, certain workers' secondary National Insurance cannot count towards your claim. You cannot include someone whose earnings fall within the IR35 off-payroll working rules (a deemed employee). You also cannot include someone you employ for personal, household or domestic work, such as a nanny, gardener or housekeeper, with one exception: a care or support worker employed to look after someone with a physical or mental disability can be included. So a family employing a personal carer can still benefit, while a family employing domestic help generally cannot.
How do I claim, and do I need to claim each year?
You claim by setting the Employment Allowance indicator in your payroll software and submitting it to HMRC on an Employer Payment Summary (EPS). Once the indicator is sent, HMRC treats you as claiming for that tax year and you reduce the employer Class 1 National Insurance you pay over as the allowance is used; you do not need to apply separately or wait for approval, but you must hold records to show you were eligible. The allowance does not always carry forward automatically, so HMRC's guidance is to make a fresh claim at the start of each tax year. This matters because eligibility can change, for example if your staffing falls to a single director or you become part of a connected group. If you forget to claim early in the year, you can still claim later and apply the allowance to National Insurance already paid, subject to HMRC's time limits.
How is the allowance used up across the year, and what about state aid?
The allowance is used month by month against your employer secondary Class 1 liability until exhausted. An employer with a modest bill may spread the £10,500 across many months, while an employer with a large bill may use it within the first month or two; once the £10,500 is absorbed you pay your employer secondary Class 1 National Insurance in full for the rest of the year. For some employers the allowance counts as de minimis state aid, a capped category of public support tied to your sector. If that applies to you, make sure receiving it does not take you over the relevant sector ceiling when combined with other de minimis aid. Most ordinary employers who receive no other state aid are not affected, but if you operate in a sector with state aid limits, check your position before claiming.
What is Small Employers' Relief?
Small Employers' Relief lets qualifying smaller employers recover more than the full amount of certain statutory parental and bereavement payments they make to employees. Larger employers can already recover most of these payments, but a small employer can recover the whole payment plus an extra amount as compensation for the employer National Insurance associated with it. The relief is designed to ease the cash-flow burden that statutory payments place on smaller businesses. Like the Employment Allowance, the recovered amounts are reported to HMRC through the Employer Payment Summary.
How do I qualify for Small Employers' Relief in 2026 to 2027?
You qualify as a small employer if your total Class 1 National Insurance, counting both the employee and employer portions, was £45,000 or less in the relevant qualifying tax year. This is a single combined figure across your PAYE scheme, not a per-employee test. If your total Class 1 National Insurance was above £45,000 you are treated as a larger employer for recovery purposes. Confirm your prior-year Class 1 total before the new tax year begins, because it determines whether you recover at the small-employer rate or the standard rate.
What are the recovery rates for 2026 to 2027?
For payments made from 6 April 2026, a qualifying small employer can recover 109% of the statutory payments covered by the relief, which is 100% of the payment plus an extra 9% as compensation. An employer that does not qualify as a small employer recovers 92% of the same payments. The 9% uplift is intended to offset the employer secondary Class 1 National Insurance that arises on statutory payments, which is why only small employers receive it.
Which statutory payments does the relief apply to?
The recovery rates apply to the family-related and bereavement statutory payments, not to sick pay. You can recover Statutory Maternity Pay, Statutory Paternity Pay, Statutory Adoption Pay, Statutory Shared Parental Pay, Statutory Parental Bereavement Pay and Statutory Neonatal Care Pay. You cannot recover Statutory Sick Pay at all, regardless of your size, so you should budget for the full cost of Statutory Sick Pay as an employer expense and only expect to recover the parental and bereavement payments through the EPS.
How do I claim the relief and recovered payments?
You report the amounts you are recovering on the Employer Payment Summary (EPS) as year-to-date figures by tax month. Payroll software holds separate fields for the recovered payment and the associated National Insurance compensation, for each of the recoverable statutory payments. The recovered figure represents the statutory payment you are reclaiming, and the compensation figure represents the additional 9% available to small employers. A larger employer reports only the recovered amount that produces 92% recovery and does not report compensation, while a small employer reports both so the combined figure reaches 109%. By submitting these on the EPS you reduce the amount you pay over to HMRC for the period, rather than receiving a separate refund in most cases. If you set your employer size incorrectly in the software, you risk over-recovering or under-recovering, so confirm your prior-year Class 1 total before the year begins. For the Apprenticeship Levy, see the companion article.