The employment allowance provides valuable support of up to £10,500 for businesses employing staff, as we explained in an earlier article. However, not all businesses can claim it. In particular, “single-director companies” are excluded from benefitting from the allowance.  

What is a single-director company? 

The exclusion can be difficult to understand and apply. Although the term “single-director company” goes some way to getting the point across, it can be misleading, as it is possible for a company with more than one director to miss out too.  

The legislation provides that a company (C) is excluded from claiming the employment allowance for a tax year where: 

“(a) all the payments of earnings in relation to which C is the secondary contributor in that year are paid to, or for the benefit of, the same employed earner, and 

(b) when each of those payments is made, that employed earner is a director of C.” 

Note that this exclusion only applies where the employer is a company and not, for example, where the business is carried out by a sole trader.   

What is a secondary contributor? 

A company is a “secondary contributor” in respect of a director or employee where it pays that person an amount in excess of the secondary threshold. The secondary threshold for 2025/26 is: 

• £96 per weekly pay period;
• £417 per monthly pay period; and
• £5,000 per year.  

Directors have an annual earnings period. The secondary threshold may be higher in some instances, for example, where the duties are carried out in a freeport or investment zone.  

Applying the restriction 

Put simply, a company can only claim the employment allowance for a tax year if, at some point in the tax year: 

• for a company with only one director, it is a secondary contributor in respect of at least one other employee;
• for a company with multiple directors and no employees, it is a secondary contributor in respect of at least two of the directors; and
• for a company with multiple directors and at least one employee, it is a secondary contributor in respect of at least:
  • one of the employees; or
  • two of the directors.

Dealing with a change in circumstances 

At the start of the tax year, or on becoming an employer, the company may make a claim for the employment allowance on the basis that it will meet the conditions later in the year (eg, it expects to recruit an employee earning more than the secondary threshold). If this turns out not to be the case, it will need to stop its claim and pay back the allowance claimed to date.  

A business that did not claim the allowance at the start of the tax year, and now meets the conditions to claim the allowance, can begin to claim the allowance from that point. The full amount of the allowance is given (ie, it is not time apportioned and restricted by reference to the remaining part of the tax year). 

Further information 

• Employment Allowance: How to claim - GOV.UK 
• Single-director companies and Employment Allowance: further guidance - GOV.UK
• NIM06545 - Employment Allowance: Who can’t claim the Employment Allowance? Single director limited companies - HMRC internal manual - GOV.UK 
• Section 2(4A), National Insurance Contributions Act 2014 
• Rates and allowances: National Insurance contributions - GOV.UK