Can Single Director Companies Claim Employment Allowance?
Short answer: No. Companies where the only employee paid above the Secondary Threshold is a director cannot claim Employment Allowance.
Employment Allowance can save eligible employers up to £10,500 per year on employer National Insurance. But single director companies face specific restrictions. Here is the complete explanation.
Key Rule for Single Directors
Companies where the only employee paid above the Secondary Threshold is a director cannot claim Employment Allowance. This applies to most single-director companies without other staff.
What Is Employment Allowance?
Employment Allowance (EA) is a government scheme that allows eligible employers to reduce their Class 1 employer National Insurance liability by up to £10,500 per tax year (2025/26).
For 2025/26, the allowance increased from £5,000 to £10,500, making it significantly more valuable for eligible businesses.
Eligibility Criteria
You CAN Claim If:
- ✓ You employ at least one person (other than the director) who is paid above the Secondary Threshold
- ✓ Your employer NI bill was under £100,000 in the previous tax year
- ✓ You're not a public body or company doing more than half your work for the public sector
- ✓ You're not part of a group that's already claimed EA through another company
You CANNOT Claim If:
- ✗ The only employee paid above ST is a director (the "single director rule")
- ✗ Your only employees are household staff (nannies, au pairs, etc.)
- ✗ You're a service company working in the public sector (IR35 rules apply)
- ✗ Another connected company has already claimed the allowance
The Single Director Rule Explained
HMRC introduced the single director rule to prevent one-person companies from claiming Employment Allowance when they have no genuine employees.
The Test
Look at everyone on your payroll who earns more than the Secondary Threshold (£5,000 for 2025/26). If the only person meeting this threshold is a director, you cannot claim.
Note: If you have a spouse or employee earning above ST who is not a director, you may be eligible even as a small company.
Common Scenarios
Sole Director, No Employees
Cannot claim. The only person above ST is the director.
Director + Spouse Employee (Earning Above ST)
Can claim. There's a non-director employee earning above the Secondary Threshold.
Director + Spouse on Minimal Salary (Below ST)
Cannot claim. The spouse doesn't earn enough to count as an employee above the threshold.
Two Directors + One Part-time Employee (Above ST)
Can claim. There's at least one non-director employee above the threshold.
Impact on Optimal Salary
Your eligibility for Employment Allowance significantly affects the optimal director salary:
Without EA (Most Single Directors)
Optimal salary is typically £6,500 (Lower Earnings Limit) to minimise employer NI while maintaining state pension credits.
With EA Eligibility
A higher salary up to £12,570 may be optimal as employer NI is offset by the allowance.
How to Check and Claim
- 1. Verify eligibility – Check you meet all criteria using the HMRC guidelines
- 2. Claim through your payroll – Set the Employment Allowance indicator to "Yes" in your payroll software
- 3. Submit your EPS – Include the claim in your Employer Payment Summary
- 4. Keep records – Document why you believe you're eligible in case of HMRC enquiry
2025/26 Key Thresholds
| Threshold | Amount |
|---|---|
| Employment Allowance | £10,500 |
| Secondary Threshold (ST) | £5,000 |
| Lower Earnings Limit (LEL) | £6,500 |
| Employer NI Rate | 15.0% |
Sources
Disclaimer: This guide is for informational purposes only and does not constitute financial or tax advice. Please consult a qualified accountant for advice specific to your circumstances.