The Lower Earnings Limit (LEL): the payroll threshold you don't see.. 
But shouldn't ignore

When running payroll, most attention goes to tax and National Insurance deductions. But there’s one threshold quietly working in the background that rarely gets noticed:

The Lower Earnings Limit (LEL)

It doesn’t affect take-home pay, it doesn’t create a liability - and yet it matters more than it looks

1. What is he LEL?

The Lower Earnings Limit is the point at which an employee:

• starts building National Insurance (NI) credits
• without actually paying any NI

In simple terms, it determines whether someone is “on the NI record” for that period.

2. The change for 2026/27

The LEL has increased slightly for the new tax year:

Tax Year                                     Weekly                                     Annual
2025/26                                        £125                                         £6,500
2026/27                                        £129                                         £6,708

That’s a small uplift - but it can make a difference for lower-paid employees.

3. Why it doesn’t show in your payroll calculations?

This is where confusion often comes in.

Unlike other thresholds:

• No NIC is calculated at the LEL
• It doesn’t impact net pay
• It doesn’t appear as a deduction or employer cost

Your payroll calculations actually start from the Primary Threshold (PT) - that’s when employees begin paying NI.

So from a processing perspective, it’s easy to think the LEL isn’t relevant.

4. What the LEL actually does

Although invisible in calculations, the LEL is critical for entitlement purposes.

 A) National Insurance credits - This is the key function.

• Earnings below LEL → no NI credit
• Earnings between LEL and PT → NI credit given (but £0 NIC)

Those credits count towards:

• State Pension
• Contribution-based benefits

2. HMRC reporting

Payroll submissions still report earnings against NI bands, including the LEL range.

Even where no NIC is due, the earnings level is still relevant to HMRC.

3. Real-world impact

This threshold becomes important in situations such as:

• part-time or low-paid employees
• employees with fluctuating hours
• directors taking small salaries

A small difference in pay can change entitlement completely.

For example:

• £7,000 annual earnings → qualifies for NI credits
• £6,000 annual earnings → does not

That gap can affect someone’s long-term entitlement. employer, the best thing you can do is be upfront with your employees about the tax implications of buying their work laptop. It might

4. The Fine Print: Account for it properly

Once the price is agreed, follow these steps:

• Remove the Asset from the Books – Write off the laptop’s remaining book value.
• Calculate VAT (if applicable) – If you’re VAT-registered, you need to add VAT to the sale.
• Record the Sale - Raise an invoice and log the payment from employee in ‘Other income’ or similar.
• Consider Any Tax Implications – If you sell it way below market value, you need to report the taxable benefit to HMRC on the employee’s P11D form.

Don’t forget to reset the laptop too!
 

5. Conclusion: The Laptop Sale That Keeps on Giving (Taxes)

While selling a work laptop to an employee might seem like a generous perk, it’s important to remember that there are tax rules involved - rules that could lead to both you and your employee needing to do a bit more paperwork than anticipated.

So, before you hand over that laptop, take a moment to have a conversation with your employee. Let them know that buying the laptop might result in a taxable benefit and that VAT will apply, even if they think they’re getting a sweet deal. A little knowledge now will prevent tax shock later. It’s the kind and responsible employer thing to do - and it’ll save everyone from a future headache.

And hey, you’ll still be the hero who let them walk away with a laptop. Just make sure they don’t walk away with an unexpected tax bill too!