The £10,500 employment allowance single-director companies miss, and when you can get it back

The employment allowance reduces your company’s employers’ Class 1 National Insurance bill, up to £10,500 for the 2025/26 and 2026/27 tax years. It comes off what you owe on each pay run until it is used up or the year ends.

The exclusion is specific. Under HMRC’s guidance, a limited company cannot claim where it has a single director and that director is the only employee paid above the secondary threshold. Read it again, because the wording does the work. It is not about how many people are on the payroll. It is about how many are paid above the secondary threshold, which HMRC set at £5,000 a year from April 2025, around £417 a month.

So a company with a director and three part-timers all earning £300 a month is still excluded, because nobody else crosses the line. A company with a director and one other person on £500 a month is not excluded, because a second person is above it. Self-employed people are unaffected by any of this, since the rule applies to limited companies only.

You can read HMRC’s own note on it at gov.uk.

Two changes landed together in April 2025 and they pulled in opposite directions for a single-director company.

The employers’ National Insurance rate went up from 13.8 per cent to 15 per cent. At the same time the secondary threshold, the point where the company starts paying National Insurance on a salary, came down to £5,000 a year. More of your salary is now inside the charge, and the charge on it is higher.

The allowance itself more than doubled to £10,500, and the old £100,000 cap on employer National Insurance liability was removed, so larger employers can claim too. Every one of those changes is good news if you have staff. If you are the only name on the payroll, you got the rate rise and the lower threshold and none of the relief.

Put rough numbers on it. A director on a £50,000 salary with nobody else above the threshold leaves the company with a secondary National Insurance bill in the region of £6,750 for the year, on our own calculation using the 2025/26 rate. Not a penny of the allowance touches it. That is money the company pays because of who is on the payroll, not because of what the business earned.

Here is the part most directors have not been told. Once a second employee or director is paid above the secondary threshold, the company qualifies for the employment allowance for the whole tax year. Not a slice of it, the full amount up to £10,500.

HMRC’s guidance is clear that eligibility turns on that additional employee being paid above the threshold, and that companies where two directors both earn above it, including husband and wife companies, are inside the rules.

In practice this is usually a spouse or family member who already does real work in the business: the invoicing, the supplier chasing, the diary, the bookkeeping handover. Pay them properly for it, above the threshold, and two things happen at once. The company gets access to the allowance, and you have moved income to a second person’s tax allowances instead of taking it all through dividends on one.

There are conditions. The work has to be genuine and the pay has to be commercially sensible for that work. A salary that would not stand up if someone asked what the person does is not a plan. We go into the detail of that in Can I pay my spouse from my limited company.

We do not tell every single-director company to put someone on the payroll. A few situations where the maths or the admin does not justify it.

• Your own salary sits at or below the secondary threshold already. If the company is paying little or no employers’ National Insurance, there is nothing much for the allowance to reduce, and the answer is usually in the salary and dividend mix instead.
• There is no real role. Paying a family member for work nobody can describe creates a problem bigger than the one it solves.
• Your company is part of a group of connected companies and another company in the group has already claimed. Only one claim is allowed across connected companies.
• The work falls inside the off-payroll rules, where the allowance is not available on deemed payments.

There is also timing. If your circumstances change mid-year and you end up as the only person above the threshold again, HMRC allows the claim for that tax year, and the claim is switched off for the following year by setting the employment allowance indicator to no and sending an employer payment summary. Changes now do not disturb claims already made in earlier years.

When a professional services director comes to us with this question, it never stays a payroll question for long. Looking at who is on the payroll means looking at how much salary you take, what comes out as dividends, and what the corporation tax position does in response.

So the conversation runs through four things. Whether anyone other than you is paid above the secondary threshold, and whether anyone sensibly could be. Whether your salary level is the right one once the lower threshold and the 15 per cent rate are taken into account. Whether a spouse or family member is already doing work the company has never paid for. And whether your dividend timing is sitting where it should relative to your personal tax position.

Most of the time the allowance is the smallest part of what comes out of that half hour. It is simply the one with a number attached, which is why it gets people’s attention. If you want the salary side in detail, start with Optimum director salary and dividends for 2026 to 2027, or see how we handle it on our salary, dividends and personal tax page.