Employment Allowance for connected companies: choosing the one claimant
Two private companies have the same controlling owner, and each runs its own payroll. Both employ staff and both pay employer National Insurance. If the companies were connected at the start of the tax year, only one of them can claim Employment Allowance for that year, and they choose which. The choice deserves care. The allowance cannot exceed the claimant's own eligible liability, and any unused part cannot pass to the other company. This article covers ordinary private businesses in the 2026 to 2027 tax year, which runs from 6 April 2026 to 5 April 2027.
What the allowance reduces
Employment Allowance reduces an eligible employer's secondary Class 1 National Insurance by up to £10,500 per tax year, limited to the eligible liability. It is set against employer Class 1 NIC only. Employee NIC and income tax deductions are untouched.
From 6 April 2025 the maximum rose to £10,500, and the previous £100,000 secondary liability eligibility restriction was removed. That old test does not apply to a 2026 to 2027 claim. Claims for earlier years follow the criteria and limits of those years.
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Check each company can claim at all
A company with only one director cannot claim if that director is the only employee with secondary Class 1 liability. Having a single director is not itself the bar. A one-director company whose other employees create secondary liability is in a different position.
Certain liabilities are excluded, including some arising under the off-payroll working rules and liabilities for household or domestic workers. Work out each company's eligible employer NIC without them.
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Connection is fixed at the start of the year
HMRC's detailed guidance says that if companies are connected at the start of the tax year, only one of them qualifies for that year. The connection holds for the whole year, even if ownership changes later. One company controlling another, or both being under common control, can create the connection.
Family links need more care. Rights of associated persons, such as relatives, are attributed only where there is substantial commercial interdependence in the circumstances the guidance sets out. A shared surname is not a reliable test, and family ownership does not automatically connect two companies.
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Hypothetical: which company should claim
Hypothetical: Company A and Company B are connected through the same controlling person on 6 April 2026. Both have ordinary staff, meet every other eligibility condition and have no excluded liabilities. Expected eligible employer secondary Class 1 NIC for 2026 to 2027 is £8,000 for A and £15,000 for B.
Choosing A wastes £2,500 of the ceiling, because relief stops at A's own liability. The unused amount cannot move to B, and the companies cannot claim a second allowance.
| Claimant | Allowance used | A pays | B pays | Combined |
|---|---|---|---|---|
| Company B | £10,500 | £8,000 | £4,500 | £12,500 |
| Company A | £8,000 | £0 | £15,000 | £15,000 |
Making the claim
The claim goes through an Employer Payment Summary with the Employment Allowance indicator set to Yes. Where there are several payrolls, only one is used for the claim. Eligibility must be checked, and a fresh claim made, every tax year, even if the company claimed before. Reaching the annual limit is not a reason to change the indicator to No.
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Agree the claimant in writing
Compare each company's expected eligible liability, record the chosen company and PAYE scheme, and tell every payroll owner so that only that scheme sets the indicator.
- Ownership and control chart as at 6 April, with interdependence evidence where relevant
- Each company's secondary Class 1 calculation and director eligibility check
- EPS evidence and confirmation of the claim for the year
- Allowance used to date reconciled to eligible employer NIC, separate from employee deductions