What is Small Employers' Relief in the UK?

From 6 April 2026, HMRC raised the Small Employers' Relief compensation rate, giving eligible businesses a stronger incentive to manage statutory parental payments through compliant payroll processes. Yet many small UK employers still miss out by misunderstanding the £45,000 NI threshold or confusing this scheme with the Employment Allowance. With the 2026/27 rules now in force, getting the calculation and claim process right has a direct and measurable impact on business cash flow.

What is the Small Employers' Relief scheme?

The Small Employers' Relief scheme is a UK government initiative allowing eligible businesses to recover 109% of the statutory parental pay they provide to employees, reimbursing the full cost plus a 9% uplift to offset employer Class 1 NIC costs on those payments.

The 9% uplift exists because employers must pay Class 1 NICs on statutory parental payments in the same way they do on regular earnings. Without this compensation, small businesses would effectively subsidise government-mandated leave out of their own NIC budget, making the scheme broadly cost-mitigating, though not fully cost-neutral: the 9% uplift only partially offsets the 15% employer NIC liability.

The scheme covers six statutory payment types, each with its own eligibility rules, qualifying weeks, and weekly rates:

• Statutory Maternity Pay (SMP)

• Statutory Paternity Pay (SPP)

• Statutory Adoption Pay (SAP)

• Statutory Shared Parental Pay (ShPP)

• Statutory Parental Bereavement Pay (SPBP)

• Statutory Neonatal Care Pay (SNCP) (effective from 6 April 2025)

All six must be calculated correctly before the recovery claim is submitted via EPS. Importantly, the scheme does not apply to Statutory Sick Pay (SSP), which cannot be reclaimed by employers under current HMRC rules.

Who is eligible in 2026/27?

You are eligible for Small Employers' Relief in 2026/27 if your total gross National Insurance liability for the previous tax year (2025/26) was £45,000 or less. This threshold applies to the combined total of both employer and employee NICs before any deductions, including Employment Allowance, are applied.

Eligibility is assessed based on your business's financial position ahead of the employee's qualifying week. Where pay has varied during the reference period, the Alabaster ruling sets out how those variations affect statutory pay calculations and threshold compliance.

How do you check your eligibility using your P32 record?

To confirm eligibility, employers should refer to their P32 Employer Payment Record from 2025/26, which shows the total gross NIC figure before any deductions. This is the figure HMRC uses to determine threshold compliance.

A common mistake is using the net NI payment made to HMRC after Employment Allowance has been applied. That figure will be lower and may give a misleading impression of eligibility.

Other frequent eligibility errors include:

• Using the net NI figure instead of the gross NI liability

• Failing to include both employer and employee NICs in the total

• Assuming eligibility based on headcount rather than NI liability

If your business grew significantly in 2025/26 and your NI liability crossed the £45,000 threshold, you will not qualify for the 109% recovery rate in 2026/27, even if you qualified the previous year. Eligibility is reassessed annually based on the prior tax year.

How does the Small Employers' Relief threshold for 2025/26 work?

The Small Employers' Relief threshold works as the financial baseline HMRC uses to determine your recovery rate for the 2026/27 tax year. Your eligibility depends entirely on your gross NI liability in 2025/26, not on your current-year figures, employee headcount, or net payments made to HMRC after deductions.

If your gross NI liability exceeded £45,000 in 2025/26, you are restricted to the 92% standard recovery rate for the entire 2026/27 tax year, with no partial relief available mid-year if business growth pushes you above the threshold. The threshold is a binary pass/fail assessment applied once per tax year.

👉 To note: It is also important to distinguish between the gross NI liability (the figure HMRC uses) and the net NI payment made after applying Employment Allowance. Using the net figure to assess eligibility is one of the most common errors UK employers make and can lead to incorrect EPS submissions.

What does the threshold mean in practice for UK SMEs?

To illustrate: under the 2026/27 employer NIC rate of 15% and the £5,000 secondary threshold, 9 employees on an average salary of £28,000 generate roughly £42,160 in combined NIC, just under the cap. Add a 10th employee and liability rises to ~£46,844, dropping the business to the standard 92% recovery rate. Always check the exact figure on your 2025/26 P32 record before assuming eligibility, a liability of just £45,001 disqualifies the business from the 109% rate for the entire 2026/27 tax year.

💡 Good to know: The threshold is assessed once per tax year and cannot be recalculated mid-year. If your NI liability was borderline in 2025/26, confirm the gross figure on your P32 before submitting your first EPS of 2026/27.

How much can you reclaim under Small Employers' Relief?

Eligible businesses can reclaim exactly 109% of the statutory parental payments they process. This total consists of a 100% full reimbursement of the payment given to the employee, plus an extra 9% uplift designed to partially offset the 15% employer NIC employers still owe on statutory parental pay.

If your gross NI bill exceeded the threshold last year, you default to the standard statutory recovery rate. The table below illustrates the financial difference:

📌 Example: As shown above, if you process £600 in maternity pay this month, an eligible small employer recovers £654 (£600 x 109%). Without the relief, a larger employer calculating the standard 92% recovery rate reclaims only £552 for the exact same payment.

How does the recovery rate affect annual cash flow?

According to HMRC's Statutory Payments Manual (SPM182100), the 9% compensation rate for 2026/27 marks the second consecutive uplift, rising from 3% in 2024/25 to 8.5% in 2025/26 and now to 9% from 6 April 2026. The difference between 109% and 92% may appear small on a single payment, but it compounds significantly across a full tax year, particularly for businesses with higher rates of parental leave.

📌 Example: A business processing £12,000 in SMP across the year recovers £13,080 at the 109% rate. By contrast, a comparable business with NI liability above £45,000 recovers only £11,040, a £2,040 cash-flow advantage retained by the small employer. For businesses operating with tight margins, this gap has a material impact on working capital. Employers should factor the recovery rate into their cash flow forecasts at the start of each tax year, particularly when employees are entering or approaching qualifying periods for statutory parental pay. 

How do you claim Small Employers' Relief from HMRC?

You claim Small Employers' Relief by submitting an Employer Payment Summary (EPS) to HMRC each pay period in which a statutory parental payment is processed. The EPS must reach HMRC by the 19th of the following tax month (or 22nd for electronic payments) to reduce your PAYE liability for that period.

The claim process follows these steps each pay period:

1. Calculate the statutory payment due (SMP, SPP, SAP, ShPP, SPBP, or SNCP) using the correct 2026/27 weekly rate

2. Apply the 109% recovery rate to the total statutory amount paid in that pay period

3. Record the recoverable amount in your payroll system against the relevant payment type

4. Submit the EPS by the 19th of the following tax month, reporting the recovery to offset your PAYE liability

5. Reconcile the recovery against your monthly PAYE payment, reducing the net amount owed to HMRC

💡 Good to know: If you fail to include a statutory recovery on the EPS in the correct month, you can still include it in a later submission within the same tax year. However, all recoveries for 2026/27 must be reported by 19 April 2027. Claims cannot be carried forward into the next tax year.

How does payroll software support the EPS claim process?

Payroll software can apply the 109% recovery rate automatically, generate the EPS each pay period, and reconcile statutory payments against PAYE liability.

For employers managing multiple employees on statutory leave simultaneously, automation also reduces the risk of under-claiming, which is one of the most common errors in manual EPS processing. Every missed recovery represents a direct cash flow loss for the business.

⚠️ Warning: Submitting an EPS with incorrect statutory recovery figures can trigger an HMRC compliance check. Ensure all statutory payment types are correctly categorised in your payroll system before submission, as misclassified payments may be rejected or queried under RTI validation rules.

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