The £10,500 Allowance Your One-Person UK Company Can't Claim: Employment Allowance and the Single-Director Rule

Employment Allowance sounds like exactly the kind of relief a lean, non-resident-owned UK company should grab: it lets an eligible employer knock up to £10,500 off its employer (secondary) Class 1 National Insurance bill for the 2025/26 and 2026/27 tax years. But there is a rule that quietly disqualifies a huge number of one-person limited companies — and if you claim the allowance when you shouldn't, HMRC will expect the National Insurance back.

Here is who can claim, who can't, and why this matters more in 2026 than it used to.

What Employment Allowance actually is

Employment Allowance is a reduction — not a cash payment — against your company's employer Class 1 National Insurance contributions (NICs). For 2025/26 and 2026/27 the maximum is £10,500 per tax year. You claim it through your payroll software by setting the "Employment Allowance indicator" to yes and submitting an Employer Payment Summary (EPS) to HMRC. Once claimed, your company simply stops paying employer NICs until the £10,500 is used up, then resumes normal payments.

It only reduces the employer's NIC. It does nothing for the employee's own National Insurance, income tax, or the company's corporation tax.

The single-director rule that blocks most one-person companies

Here is the trap. HMRC's guidance is explicit: a limited company cannot claim Employment Allowance if it has just one director and that director is the only employee paid above the Secondary Threshold.

For a typical non-resident founder, this describes the company perfectly. You set up a UK LTD, you are the sole director, you put yourself on a modest salary, and there is no one else on the payroll. In that situation you are not eligible — full stop.

The rule is slightly broader than "sole employee." Even if your company has several people on the books, if the director is the only person paid above the Secondary Threshold, the company still cannot claim. What counts is how many people are paid over that threshold — not how many names are on the payroll.

Why the Secondary Threshold suddenly matters

The Secondary Threshold is the point at which your company starts paying employer NICs on someone's wages. For 2025/26 it is £5,000 a year (roughly £96 a week). From April 2025 the employer NIC rate also rose to 15% (up from 13.8%), while the threshold was cut sharply from £9,100 to £5,000.

Those two changes together mean employer NICs now bite at a much lower salary than before, so the pull toward claiming the £10,500 allowance is stronger than ever. It also means the single-director exclusion costs one-person companies real money — and makes wrongly claiming it a more common and more expensive mistake.

The additional-employee test that unlocks the allowance

You become eligible the moment a second person — another employee or director — is paid above the Secondary Threshold. HMRC lists situations that qualify, including two directors who both earn above the threshold, a husband-and-wife director team both paid above it, or a seasonal worker paid above the weekly threshold for even a single week. If that second person is paid above the threshold at any point in the tax year, the company qualifies for the whole tax year.

The decisive factor is always the same: the additional person must actually be paid above the Secondary Threshold. Adding a second director on a token £1 salary does not unlock anything. Directors also have to be paid above the annual threshold, or a pro-rata amount if they were appointed part-way through the year.

What happens if you claim it when you shouldn't

If your company is not eligible and you claim anyway, you have not saved anything — you have deferred a bill. HMRC expects the full employer Class 1 NICs to be paid, and an incorrect claim leaves your company owing the National Insurance it wrongly held back, potentially with interest. It is the kind of error that surfaces months later, when reconciling the payroll year, at exactly the wrong time.

If you realise you are no longer eligible at the start of a tax year, the fix is straightforward: set the Employment Allowance indicator to "no" in your payroll software, submit an EPS, and make sure you pay the full employer NICs without the deduction. Stopping a claim does not disturb earlier years that were correctly claimed.

A note for non-resident founders

Being based overseas does not change the rule. If you run a UK company and you are the only UK-based employee paid above the Secondary Threshold, you are treated the same as any other single-director company: not eligible. And if your company is part of a group of connected companies, only one company in the group can claim the single £10,500 allowance between them.

Have Questions About Your Own Situation?

Employment Allowance sits at the intersection of payroll, director salary planning, and National Insurance — an area where a small assumption can quietly turn into a repayment demand. If you are unsure whether your UK company qualifies, it is worth talking it through with people who do this every day — no pressure, no hard sell, just clear answers.

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