When acting as profit consultants, we are often asked whether a single-director company can claim the Employment Allowance. This allowance permits eligible employers to reduce their annual National Insurance liability by up to £10,500, which is a valuable saving. We have set out some guidance on this below. However, there is a simple trick to claim it when initially they cannot.

Single-director companies not eligible for employment allowance

Limited companies cannot claim Employment Allowance if they have just one director and that director is the only employee liable for Secondary Class 1 National Insurance. This means that companies are not eligible for the Employment Allowance if they have several employees but the director is the only employee paid above the Secondary Threshold. For 2025/26 the Secondary Threshold is set at £5,000.

The additional employee test

Where more than one employee or director earns above the Secondary Threshold, the company will be eligible for Employment Allowance for the whole tax year. The decisive factor is that the additional employees must be paid above the Secondary Threshold. This includes companies where:

• all employees are directors earning above the Secondary Threshold

• the company employs husband and wife directors where both earn above the Secondary Threshold

• the company employs seasonal workers where one or more is an employee earning above the Secondary Threshold in a week

Directors must be paid above the annual Secondary Threshold or pro-rata if the directorship began after the start of the tax year.

Changes in the year

If your company has several employees paid above the Secondary Threshold, but your circumstances change during the tax year and the director becomes the only employee paid above the Secondary Threshold, you can still claim the Employment Allowance for the tax year. However, you should stop it for the following tax year, unless there are further changes to your circumstances and a further employee is taken on and paid above the Secondary Threshold.

Stopping your Employment Allowance claim

If your company is no longer eligible to claim the Employment Allowance at the start of the tax year, you should stop your claim. You should select ‘no’ in the ‘Employment Allowance indicator’ field within your payroll software, and submit an Employment Payment Summary (EPS) to HMRC. You must then ensure that you pay the full amount of employer Class 1 National Insurance contributions, without deducting the Employment Allowance.

Employment Allowance for Connected Companies

If, at the start of the tax year, 2 or more companies are connected with each other only one of those companies can qualify for the Employment Allowance for that tax year. It is up to the companies to decide which one of them will claim. The basic rule for deciding if 2 companies are ‘connected’ with each other is that either:

• one of them has control of the other

• both are under the control of the same person or persons

If at the start of the tax year, you hold the majority (over 50 per cent) of the share capital or voting rights in more than one company then those companies are connected. You’ll have control and this means only one of the companies would be entitled to the Employment Allowance. The connected companies rule also applies to Groups of companies. If a parent company has a number of subsidiary companies, you’ll need to decide which company will claim the Employment Allowance.

If you need help with the Employment Allowance or need a profit consultant who can work in all areas of the business contact us today at [email protected] or call us on 01628-623444.