It reduces your employer National Insurance bill by up to a set annual amount, claimed through your payroll software as an EPS. Most small employers qualify, and it is claimed rather than given, so an employer who never ticks the box simply pays more — which we find more often than we would like. The significant exclusion is the single director company with no other employees: if the only person on the payroll is a sole director, you cannot claim, and this catches a lot of contractors. Take on a second employee earning above the secondary threshold and the position changes. Connected companies must share one allowance between them rather than claiming one each. It is not automatic and it does not backdate itself.