Fiscal Umbrella Accountants
Employment allowance checker: can your limited company claim?
Written for directors of UK limited companies who run a payroll and want to know whether the employment allowance applies to them this tax year. It covers eligibility, the single-director rule that catches most one-person companies, connected companies, and what to do once you know where you stand. About eleven minutes to read.
Updated 18 October 2026
11 min read
- The short version
- What the employment allowance does
- Who can claim and who cannot
- The single-director rule in practice
- Adding a second person to payroll
- Connected companies and multiple payrolls
- Run the check on your own payroll
- Where it goes wrong
- When professional help pays off
- Frequently asked questions
The short version
- Employment allowance takes up to £10,500 off a company’s employer National Insurance bill across a tax year.
- A company with one director and nobody else paid above the secondary threshold cannot claim it at all.
- A second director or employee paid above the secondary threshold makes the company eligible for the whole tax year.
- Where you control two or more companies, only one of them can claim, and you choose which.
- The claim is made through payroll on an employer payment summary and does not carry forward automatically each year.
What the employment allowance does
An employment allowance checker has one job: to tell you whether your limited company can take up to £10,500 off its employer National Insurance bill for the tax year, or whether the way your payroll is set up rules you out. The answer turns on who is on your payroll and how much they are paid, so it can change from one year to the next.
The allowance sits against secondary Class 1 National Insurance, which is the employer’s share of the National Insurance on salaries. It is not a cash payment. Each time you run payroll, the employer National Insurance due is reduced until the allowance is used up or the tax year ends, whichever happens first. If your company’s employer National Insurance for the year comes to less than the allowance, you simply get the benefit of what you owe and no more.
Most owner managed companies land in one of three positions. Some are clearly eligible because two or more people are paid a real salary. Some are clearly excluded because the director is the only person on the payroll. A third group sit near the line, usually because of a spouse’s salary level or a second company, and those are the ones where a careful check pays for itself. The rest of this guide works through each test in the order HMRC applies it.
Who can claim and who cannot
Start with the basics. Your company needs a PAYE scheme and a secondary Class 1 National Insurance liability. No employer National Insurance means nothing for the allowance to reduce.
The general conditions
- You are a business or charity with employer National Insurance to pay.
- Less than half of your work is done in the public sector, unless you are a charity.
- If you run more than one payroll under the same company, the claim can only be made against one of them.
- Where you are part of a group of connected companies or charities, only one entity in the group claims.
Workers who do not count towards eligibility
Two groups are specifically excluded. The first is anyone whose earnings fall under the off-payroll working rules, often called IR35, where the deemed employment payment is handled by the engager. The second is anyone employed for personal, household or domestic work, such as a nanny or a gardener, unless they are a care or support worker for someone with a disability.
The old £100,000 cap
Until April 2025, companies with employer Class 1 National Insurance above £100,000 in the previous tax year were locked out. That restriction was removed from 6 April 2025, so larger employers can claim again. If you are looking back at earlier tax years, the older rules still apply to those years, which matters if you are considering a backdated claim. The current conditions are set out on GOV.UK.
The single-director rule in practice
This is the rule that catches the most limited companies, and it is the first thing any honest employment allowance checker should test.
If your company has one director and that director is the only person on the payroll with earnings above the secondary threshold, the company cannot claim. The secondary threshold has been £5,000 a year since 6 April 2025, which works out at a little under £417 a month. The restriction applies to limited companies specifically.
Having staff is not enough on its own
A point that surprises people: you can employ several people and still be excluded. If the director is the only one paid above the secondary threshold, and everyone else sits below it, the test is failed. Part-time staff on low hours and family members on token salaries do not help here. What counts is whether someone other than the sole director crosses that threshold.
What makes a company eligible
If at any point in the tax year a second director or employee is paid above the secondary threshold, the company qualifies for that whole tax year. Common examples include two directors who both take a salary above the threshold, a husband and wife board where both are paid properly, and seasonal staff where at least one person’s weekly pay crosses the weekly equivalent.
There is a useful detail at the other end. If a company started the year with two people paid above the threshold and ended it with only the director, the claim for that year stands. Eligibility is tested across the year, not frozen on 6 April.
Adding a second person to payroll
Once a director understands the rule, the next question is always the same: can I just put my spouse on the payroll? Sometimes, yes. The conditions matter.
The salary has to clear the threshold
A nominal salary of forty or fifty pounds a month does nothing for eligibility, because it sits under the secondary threshold. The second person has to be paid above that line, which means their own salary starts generating employer National Insurance. The allowance then covers it, along with the director’s, up to the annual limit. The arithmetic usually still works in the company’s favour, but it has to be done rather than assumed.
The work has to be real
Paying a family member for work they genuinely do, at a rate you would pay anyone else for that work, is ordinary and acceptable. Paying someone who does nothing is not, and it is the sort of thing that looks obvious when HMRC reads a payroll record alongside a set of accounts. Keep a short job description, a contract, and evidence of the hours. The National Minimum Wage rules apply to employees, and whether a director spouse falls inside them depends on whether there is a contract of employment, so get that decided before the first payslip rather than after.
It changes more than one number
A second salary affects corporation tax, the household’s income tax position, pension auto-enrolment duties, and the dividend plan for the year. That is why we look at the whole picture in one go rather than at the allowance in isolation. More on that in salary, dividends and personal tax.
Connected companies and multiple payrolls
If you control more than one company, the next test applies before you claim anything.
When companies count as connected
Two companies are connected if one controls the other, or if the same person or persons control both. Control usually shows up as more than half of the voting power, the share capital, the rights to income, or the rights to assets if the company were wound up. There are further tests covering loan creditors, trustees, fixed rate preference shares, and what HMRC calls a minimum controlling combination.
The position is set at the start of the tax year. If two companies are connected on 6 April, they are treated as connected for the whole of that year, even if you sell or restructure in August.
Only one claim across the group
Where companies are connected, one of them claims the allowance and the others do not. You choose which. Pick the company with the largest employer National Insurance bill, since any unused allowance is wasted rather than shared.
Relatives and commercial interdependence
Where the only link between two companies comes from rights attributed between relatives, the connection applies only if the businesses are substantially commercially interdependent. HMRC looks for things like one company funding the other, shared economic objectives, and common management, staff or premises. Two genuinely separate trades run by two siblings are not automatically connected.
More than one payroll
Some companies run separate payrolls, perhaps by site or by department. The allowance is claimed against one payroll only. Choose the one carrying the largest employer National Insurance so the allowance is used in full.
How the claim is made and stopped
The mechanics are straightforward once eligibility is settled. The claim runs through your payroll software, not through a separate form or a letter.
Making the claim
Set the employment allowance indicator to yes in Xero, QuickBooks or whichever package you run, and submit an employer payment summary to HMRC. From the next payroll run, the employer National Insurance due is reduced until the allowance is exhausted. You can claim at any point in the tax year, though claiming late in the year can leave you with the allowance recovered as a credit against other PAYE liabilities rather than used month by month.
It does not roll forward by itself
Eligibility is tested each tax year, so the claim needs to be re-made each year. Plenty of companies either forget to switch it back on or leave it switched on after they have stopped qualifying. Both cause problems, and the second one is worse, because you end up underpaying PAYE and correcting it later.
Earlier years
If you were eligible in a previous tax year and never claimed, you can usually go back up to four tax years, applying the rules that were in force at the time. That is a real piece of money for companies that have had two people on payroll for years without anyone checking.
Stopping a claim
Change the indicator to no, submit an employer payment summary, and pay employer Class 1 National Insurance in full from that point. Stopping does not disturb claims you made in earlier years. The full process is on GOV.UK.
Why it changes how you pay yourself
The allowance is a payroll setting, and the way you pay yourself is a year-round decision. They pull on each other.
Where a company cannot claim, every pound of director’s salary above the secondary threshold carries employer National Insurance at the current rate, which has been 15 per cent since April 2025. That changes the point at which salary stops being the cheaper way to take money out compared with dividends, and it changes how much headroom you have before the higher rate band starts to bite on the personal side.
Where a company can claim, the employer National Insurance on modest salaries is covered, so a higher salary becomes less expensive to the company. That can suit a director who wants more qualifying years towards the state pension, more pensionable earnings, or a bigger corporation tax deduction in a year with strong profits.
Neither answer is right for everyone. The sensible order is to settle eligibility first, then set the salary level, then plan the dividends around the company’s reserves and your own tax position for the year. Doing it the other way round, which is how it usually happens, is how directors end up paying employer National Insurance they did not need to pay and finding out eleven months later.
If payroll is handled by a service that files and nothing more, nobody is watching that interaction. We cover the mechanics in payroll and auto-enrolment.
Run the check on your own payroll
Work through these in order. Five minutes with your payroll reports will tell you where your company stands for the current tax year.
- Confirm you have employer National Insurance — Open your payroll summary for the year to date and find the employer Class 1 National Insurance figure. If it is nil because nobody is paid above the secondary threshold, there is nothing for the allowance to reduce and the rest of the check is academic until salary levels change.
- List everyone paid above the threshold — Write down every director and employee whose pay has gone above the secondary threshold at any point this tax year, which is £5,000 a year since April 2025. Weekly and monthly staff count if they cross the equivalent weekly or monthly figure, so check seasonal and part-time runs too.
- Apply the single director test — If your company has one director and that list contains only their name, you cannot claim this year. If a second director or employee appears on the list at any point in the year, the company qualifies for the whole year, even if they later drop below the threshold or leave.
- Check for connected companies — Ask whether you or the same group of people controlled another company on 6 April. If so, the companies are connected for the whole year and only one can claim. Decide which company has the biggest employer National Insurance bill and claim there, since unused allowance cannot be moved.
- Screen out the excluded workers — Remove anyone caught by the off-payroll working rules and anyone employed for personal or household work, unless they are a care or support worker. Then confirm you are claiming against one payroll only if the company runs more than one.
- Switch it on and file — If you qualify, set the employment allowance indicator to yes in your payroll software and submit an employer payment summary. Diarise a review every April, because eligibility is tested year by year and the setting does not carry itself forward.
Where it goes wrong
Four patterns show up again and again when we take over a payroll from another firm.
- A second salary set too low — A spouse is added at a token amount to make the company eligible. It does not work, because the salary sits below the secondary threshold and generates no employer National Insurance. The second person has to be paid above that line for the company to qualify.
- Assuming last year’s claim continues — Eligibility is assessed each tax year and the claim is made each year through an employer payment summary. Companies that qualified for years can quietly stop claiming after a software change or a payroll migration, and nobody notices until the year-end reconciliation.
- Two companies claiming the same allowance — Where the same person controls two trading companies, both bookkeepers often tick the box without knowing the other exists. Only one connected company can claim, so the second claim has to be unwound and the National Insurance repaid, usually with interest on top.
- Claiming after the test is failed — A second employee leaves in April, the director becomes the only person above the threshold, and the setting stays on. Eligibility earned in an earlier year does not carry over into a new one, so the claim needs reviewing every time your payroll shrinks.
When professional help pays off
For a company with two directors on steady salaries and no other interests, this is a one-time check and your payroll software handles the rest. You do not need an accountant to tick a box.
It is worth getting a second pair of eyes in three situations. The first is where you control more than one company, because the connected company rules decide which entity claims and getting it wrong means repaying National Insurance later. The second is where you are considering putting a spouse or family member on the payroll, since the salary level, the employment contract, the minimum wage position and the dividend plan all move together. The third is where you have had two or more people on payroll for several years and nobody has ever claimed, because earlier tax years may still be open to you.
Answer a few quick questions and I will tell you which of those applies to your company, and what the free pay and tax review would look at.
Frequently asked questions
Can a single-director company ever claim the employment allowance?
Only if somebody other than that sole director is paid above the secondary threshold at some point in the tax year. That could be a second director or an employee. If the director is the only person on the payroll crossing the threshold, the company is excluded for the whole of that year.
How much is the employment allowance worth to my company?
It reduces your employer Class 1 National Insurance by up to £10,500 across the tax year. If your company’s employer National Insurance for the year is less than that, you get the benefit of whatever you owe and the remainder is simply unused. It is a reduction in liability, never a cash refund.
Can I backdate an employment allowance claim to earlier tax years?
Usually yes, for up to four earlier tax years, provided the company met the rules that applied in each of those years. The older £100,000 National Insurance cap and the earlier single director guidance both matter when you look back, so check each year separately rather than applying today’s rules across the board.
Do I have to claim it again every tax year?
Yes. Eligibility is tested each tax year and the claim is made through an employer payment summary. Set a reminder for the start of April to confirm your payroll still qualifies and that the indicator is switched on in Xero, QuickBooks or whichever payroll package you use.
I own two companies. Can both of them claim?
No. If the same person or persons controlled both companies at the start of the tax year, they are connected for the whole year and only one can claim. You decide which. Choose the company with the larger employer National Insurance bill, because unused allowance cannot be transferred to the other.
What happens if I claimed when I was not eligible?
You correct it. Switch the indicator to no, submit an employer payment summary, and settle the employer National Insurance that should have been paid. Putting it right yourself before HMRC raises it is always the better route, and the correction can usually be handled through your next few payroll runs.
Related guides and tools
The rest of the director pay picture, in the order most owners work through it.
In summary
An employment allowance checker comes down to four questions: does your company pay employer National Insurance, is somebody other than a sole director paid above the secondary threshold, do you control another company, and have you actually filed the claim this tax year. Get those four right and the allowance looks after itself.
The companies that lose out are rarely the ones doing anything wrong. They are the ones where payroll is filed every month by someone who never looks up from the submission, and where nobody has asked whether a second salary would change the picture. That question sits alongside how you pay yourself, which is where most of the money in an owner managed company tends to hide.
If you would like your own position looked at, answer a few quick questions and I will come back to you with a straight answer on where your company stands.