When Rachel Reeves announced the 2024 Autumn Budget, many business owners reached for their calculators as her speech outlined major changes to employer National Insurance (NI) contributions.
If you employ staff, these changes will hit your payroll costs from April – but the picture isn’t entirely negative.
The headline increase in employer HI has generated plenty of concern among business owners. However, with a significantly enhanced Employment Allowance (EA) also coming into play, some businesses might even be better off under the new rules.
As such, the impact on your business depends entirely on your specific circumstances.
Let’s cut through the confusion and examine what these changes really mean for your business in practical terms.
Employer National Insurance Changes: The Facts
From April 6th, 2025, two key changes will affect how much National Insurance you pay as an employer:
- The rate of employer NICs will rise from 13.8% to 15%
- The secondary threshold (where you start paying NICs) will drop from £9,100 to £5,000 per year
In weekly terms, you’ll start paying NICs when an employee earns just £96 per week, down from the current £175. And for every pound above that threshold, you’ll pay 15p in National Insurance rather than 13.8p.
What This Means for Your Business in Real Money
Let’s look at what they mean for a typical employee:
For a staff member earning £25,000 annually:
- Currently: You pay NICs on £15,900 (£25,000 – £9,100) at 13.8% = £2,194
- From April: You’ll pay NICs on £20,000 (£25,000 – £5,000) at 15% = £3,000
That’s an extra £806 per year for just one employee. For a team of five similar employees, that would mean additional annual costs of over £4,000.
For higher earners, the difference is even more pronounced. For an employee on £50,000:
- Currently: You pay £5,665 in employer NICs
- From April: This will rise to £6,750 – an increase of £1,085 per employee
This represents a mjor extra cost for many businesses, arriving at a time when many are already dealing with higher wage bills due to minimum wage increases.
The Employment Allowance Boost: A Vital Counterbalance
Here’s where things get more positive. The government is more than doubling the Employment Allowance – from £5,000 to £10,500 per year.
The Employment Allowance lets eligible employers reduce their annual NIC bill, and from April 2025, the current £100,000 Class 1 NIC threshold for eligibility is being scrapped.
This means around 865,000 employers won’t pay any employer NICs at all next tax year.
Let’s take the example of Northside Plumbing, a small business with:
- 1 owner-manager earning £40,000
- 2 qualified plumbers each earning £32,000
- 1 part-time admin assistant earning £12,000
Under the current system (2024/25):
- Employer NIC rate: 13.8%
- NIC threshold: £9,100
- Employment Allowance: £5,000
Their total employer NICs would be approximately £10,985, with £5,000 offset by the Employment Allowance, leaving them with a £5,985 bill.
Under the new system (2025/26):
- Employer NIC rate: 15%
- NIC threshold: £5,000
- Employment Allowance: £10,500
Their NIC liability would increase to about £14,400. However, with the new £10,500 Employment Allowance, they’d pay £3,900 – actually saving £2,085 compared to their current position.
Who Are the Winners and Losers?
The impact of these changes varies dramatically depending on your business size:
Small Businesses (1-9 employees)
Many genuinely small businesses with modest payrolls will benefit from these changes.
If your total employer NICs would be less than £10,500 for the year, the enhanced Employment Allowance should fully offset your liability, potentially leaving you with no employer NICs to pay.
Medium-Sized Businesses
For businesses with payrolls large enough to exceed the £10,500 Employment Allowance, there will be increased costs.
However, the higher allowance will reduce the impact compared to the headline rate changes.
Larger Employers
Businesses with substantial payrolls will feel the full force of the rate increase and threshold reduction, with the Employment Allowance representing only modest relief against their overall liability.
Next Steps: Getting Ready for April
With these changes approaching, it’s worth taking some steps as soon as you can, as well as monitoring NI and EA long-term. Here’s what to do:
| Step | What You Need to Do | Why It Matters | When to Do It |
| 1. Find out how much extra NIC you’ll owe | Take 10 minutes to run the numbers: check your payroll and apply the new 15% rate and £5,000 threshold. Not great at spreadsheets? Use an NIC calculator or ask your accountant. | You don’t want an unexpected hit to your cash flow. Knowing the exact impact means you can budget properly. | Now – don’t wait until April! |
| 2. Check if you now qualify for the £10,500 Employment Allowance | Previously blocked because of the £100,000 NIC cap? That cap is gone! Even if you were ineligible before, you might now qualify. Double-check this – it could save you thousands. | Many businesses will now pay zero employer NICs in 2025/26. Don’t miss out. | ASAP – this is ‘free money’! |
| 3. Budget for the new payroll costs | If your NIC bill is rising, adjust your budget now. If you price your services, factor in the cost increase. If you’re running a tight payroll, make sure you can absorb the extra. | Avoid nasty surprises when payroll runs. Planning ahead means you won’t be scrambling in April. | Before finalising your 2025/26 budget. |
| 4. Time bonuses or salary changes smartly | Thinking about giving pay rises or bonuses? Look at the timing carefully. Bringing them forward before April could save you NIC costs. | A small tweak in timing could mean big savings on your employer NIC bill. | Review in December/January. |
| 5. Look at salary sacrifice options | If you offer benefits like pensions or EV schemes, consider shifting some salary into tax-efficient perks. Employer NIC savings can help offset the increases. | Smart restructuring can cut costs without cutting pay. | Talk to your accountant before April. |
| 6. Get expert advice (before it’s too late!) | Not sure how to optimise your payroll? A quick chat with a tax advisor could uncover savings you hadn’t considered. | The right advice now could save your business thousands. | Book a call in Jan/Feb 2025. |
Employment Allowance Eligibility for 2025/26
Think you can apply for EA? Use this handy table to check your eligibility:
| Eligible Employers | Not Eligible |
| Businesses that employ staff and pay employer Class 1 NICs | Limited companies with only one director and no other employees earning above the secondary threshold |
| Limited companies with two or more directors earning above the secondary threshold | Public sector bodies (e.g., NHS services, local councils) unless they are charities |
| Businesses that employ at least one person earning above the secondary threshold (excluding the director) | Employers of domestic staff (nannies, gardeners, housekeepers) |
| Partnerships and self-employed businesses with employees | Connected businesses and charities – only one allowance per group |
| Franchise holders (one allowance per franchisee) | Businesses where more than 50% of work is for the public sector (unless they are a charity) |
| Independent pharmacies, even if they dispense NHS prescriptions | Companies that only pay Class 1 NICs on deemed payments (e.g., personal and managed service companies) |
| Private schools, colleges, and universities | New businesses created from a demerger during the tax year (no allowance for the first year) |
| Community Amateur Sports Clubs (CASCs) | Businesses that took over another business during the year (cannot claim remaining allowance from previous owner) |
Contact Us For Help and Advice
The Chancellor positioned the employer NIC increase as a way for businesses to contribute to public finances while shielding individual taxpayers from direct tax rises.
Whether you view this as fair or not, the practical reality is that these changes are coming, and preparation is key!
At Double Point, we specialise in helping businesses understand tax changes. Our team of chartered accountants can provide practical, bespoke advice for your specific situation.
We can calculate precisely how these NIC changes will affect your business and identify strategies to minimise their impact.
Get in touch for a free consultation – we’re here to help you prepare for April’s changes!
