Employment Allowance for Two Directors: Rules and Rates
Can a two-director company claim the Employment Allowance in the UK? Discover the 2025/26 threshold rules, the single-director exclusion, and how to claim through payroll.
Yes, a two-director company can claim the Employment Allowance in the UK, provided that both directors are paid a salary that exceeds the secondary Class 1 National Insurance Contributions threshold of £5,000 per year. If only one director receives a salary above this relative benchmark, the business is excluded from claiming.
Key Takeaways: Employment Allowance for Two Directors
- Eligibility Condition: Both directors must earn above the £5,000 secondary Class 1 National Insurance threshold to qualify.
- 2025/26 Allowance Limit: Eligible employers can claim up to £10,500 of relief against employer Class 1 National Insurance Contributions.
- No Liability Cap: The previous £100,000 threshold limit on employer National Insurance liabilities has been removed from April 2025.
- Annual Claim Required: The allowance does not renew automatically and must be claimed each tax year via payroll software.
Can a two-director company claim the Employment Allowance?
A two-director company is eligible to claim the Employment Allowance if both directors are on the payroll and each earns above the £5,000 threshold. Under HM Revenue and Customs requirements, there must be at least two people on the payroll who generate employer National Insurance contributions.
If both directors earn at least £5,000 per year, they both generate secondary Class 1 National Insurance contributions. This satisfies the government criteria for the relief. If only one director earns above this level, the company is treated as a single-person business and cannot claim.
What is the single-director company exclusion?
The single-director company exclusion is a legislative rule under s.2 of the National Insurance Contributions Act 2014 that prevents companies where only one person is liable for secondary National Insurance contributions from claiming the allowance. It applies even if a business has multiple registered directors on paper.
This means that if a company has multiple directors but only one of them is paid a salary above the secondary National Insurance threshold, the company remains excluded. The exclusion targets companies that do not have a genuine multi-person payroll generating employer National Insurance contributions.
How do director salaries affect eligibility?
Director salaries directly determine eligibility based on whether earnings cross the £5,000 secondary National Insurance threshold for the 2025/26 tax year. If both directors do not meet this limit, the company cannot claim the relief.
| Salary Scenario (2025/26) | Can You Claim? |
|---|---|
| Both directors paid above £5,000 per year | Yes |
| Only one director paid above £5,000 per year | No |
| One or both directors paid below £5,000 per year | No |
How much is the Employment Allowance for 2025/26?
For the 2025/26 tax year, the Employment Allowance is £10,500, which has been increased from the previous level of £5,000 in the 2024/25 tax year. This allows eligible employers to reduce their employer Class 1 National Insurance liabilities throughout the year.
Furthermore, the previous rule which restricted the allowance to businesses with a total secondary Class 1 National Insurance liability of under £100,000 in the prior tax year has been officially removed starting from 6 April 2025. This change expands eligibility and simplifies calculations for growing businesses.
How do you claim Employment Allowance for two directors?
To claim the Employment Allowance for two directors, you must submit an electronic claim through your payroll software. The process must be repeated at the beginning of every tax year.
- Access your commercial payroll software or HM Revenue and Customs Basic PAYE Tools.
- Navigate to your Employer Payment Summary settings within the software.
- Select the configuration option indicating that you wish to claim the Employment Allowance.
- Submit the Employer Payment Summary online to HM Revenue and Customs.
- Monitor your payroll run to ensure the allowance is deducted from your monthly National Insurance payments.
What happens if a director's pay changes during the year?
If a director's pay changes during the tax year, your eligibility for the Employment Allowance will be assessed based on the cumulative earnings at the time of the change. HM Revenue and Customs rules allow for mid-year adjustments to your claim status.
If you start the tax year ineligible but a second director's salary is increased past the £5,000 threshold later in the year, you can submit a claim from that point forward. Conversely, if both directors were on track to meet the criteria but one director's salary is reduced mid-year, you can still retain the allowance for that year according to official HM Revenue and Customs guidance.
What is the salary threshold for directors to qualify for Employment Allowance?
For the 2025/26 tax year, the secondary Class 1 National Insurance threshold is £5,000 per year. Both directors must earn above this specific limit for the company to qualify.
Can husband and wife directors claim Employment Allowance?
Yes, a husband and wife operating as co-directors can claim the allowance, provided both are paid a genuine salary above the £5,000 threshold and the company is not classified as a single-director business.
Do you have to claim Employment Allowance every tax year?
Yes, the Employment Allowance does not carry over automatically. You must submit a new claim via your payroll software at the start of each tax year.
How does HMRC define a single-director company for National Insurance?
Under s.2 of the National Insurance Contributions Act 2014, a single-director company is defined as a business where only one director is paid a salary above the secondary Class 1 National Insurance threshold, regardless of how many directors are registered.