Changes to employers national insurance

The Budget last October brought multiple tax rises with the government advising it will raise £40 billion in tax.

The increase to the amount employers pays in National Insurance on their staff salaries is predicted to raise a significant proportion of this. HMRC expect the changes to raise between £23.8-25.7 Billion a year for the 5 years 2025/26 – 2029/30, although this will be reduced by up to £5.1 Billion after taking into consideration the compensation for public sector employers.

From 6 April 2025 the following changes have been implemented.

• The rate of employers National Insurance has increased from 13.8% to 15%
• The secondary threshold when employers start to pay National Insurance on an employee’s salary has decreased from £9,100 to £5,000
• The maximum Employment Allowance has increased from £5,000 to £10,500
• The £100,000 eligibility threshold to claim the Employment Allowance has been removed.

The reduced £5,000 threshold will be held until 5 April 2028 and then it will increase in line with the Consumer Price Index (CPI) thereafter.

The changes to the employers National Insurance have been accompanied by increases to the National Minimum Wage (NMW) and National Living Wage (NLW) rates. NMW for anyone 21 and over increased by £0.77 to £12.21 (6.7% increase),

The additional cost of the National Minimum Wage and Employers National Insurance will mean a full-time employee (35 hours a week) on minimum wage will cost the employer an additional £2,367 a year.

NMW for anyone under 21 has increased at a higher rate, with the government outlining their intention to close the gap between age ranges.

The minimum wage based on age is below.

In this article we will examine the possible impact of the changes for different business sizes and industries, while also providing recommendations on how to mitigate the impact for you and your business.

Impact on a Small Businesses

Businesses with fewer than 5 employees may see a reduction in their employers National Insurance bill with the increase in Employment Allowance from £5,000 to £10,500.

Impact on a Business with High Staff Levels on National Minimum Wage

Businesses with high volume of staff on lower salaries are likely to see a big impact with the increase in National Insurance rates, in addition to the rise in NMW. This is likely to impact sectors such as hospitality and care.

Businesses with high numbers of staff on NMW

Increase in NI and NMW has resulted in a 9.1% increase in wage costs.

Impact on a Business with National Insurance costs over £100,000 now Eligible to Claim the Employment Allowance

Larger businesses with employer National Insurance costs over £100,000 will see an increase in employers National Insurance, but they will have some mitigation from now being eligible for Employment Allowance where they haven’t previously.

Large Company, Now Eligible for EA.

Employment Allowance can now be claimed.

Director Salaries

Sole Director companies will still not be eligible to claim the Employment Allowance. If a spouse or other family member carry out genuine work to assist the Director in the business, a market rate salary over £5,000 for them would mean the company is eligible for the Employment Allowance. It does need to be a salary for genuine work, HMRC have advised where a second salary is processed for the sole purpose of getting the Employment Allowance, it will need to be repaid.

The minimum level of salary required for a National Insurance credit has increased to £6,500. The credit counts towards the number of years required to obtain a full state pension and other benefits. Continuing to receive a National Insurance credit will mean business owners will need to pay National Insurance where they may not have previously. This creates an additional cost and admin burden that owners need to be aware of if they haven’t previously paid National Insurance on their salary.

For sole Directors, it will also mean Employers National Insurance will need to be paid with no Employment Allowance available.

Recommendations

Establish how the changes will affect your business. As we have seen in this article, some businesses will see a significant increase in cost, while others may see a National Insurance savings. If there are increased costs, knowing the extent of the increase for your business will help make key decisions on budgeting and pricing.

Review other costings to highlight any possible inefficiencies or needless expense. Deciding if other costs can reasonably be cut will mitigate the overall impact.

For business owners, there is no longer a one size fits all nominal salary and each personal circumstance will determine the optimum level of salary.

Explore flexible salary packages for your employees. This includes salary sacrifice which will save both the employee and employer National Insurance. In the next article, my colleague Michael Boateng will provide further information on workplace benefits and how they may help.

If you would like to discuss the impact of these changes to your business and your personal income, please contact me or your usual contact here at Albert Goodman.