Employers will soon see an increase in National Insurance contributions (NICs), adding extra costs to payroll. From April 2025, the rate of employers’ NICs will rise from 13.8% to 15%, alongside a reduction in the secondary threshold at which NICs become payable – dropping from £9,100 to £5,000 per year.
These changes mean businesses will pay more in employment taxes, with many employers needing to adjust budgets and staffing strategies accordingly.
What does this mean for employers?
The increase in NICs will impact businesses of all sizes, raising employment costs for every salaried worker. For example, an employee earning £40,000 a year currently attracts an employer NIC cost of around £4,264. After April 2025, this will rise to approximately £5,250 – an additional £986 per employee.
The effects could be more pronounced for smaller businesses, especially if payroll budgets are already tight. The Federation of Small Businesses (FSB) has warned that rising employment costs could lead to reduced hiring and wage stagnation, particularly among SMEs.
Will the Employment Allowance help?
To offset some of these increased costs, the government has announced that the Employment Allowance will increase from £5,000 to £10,500. This allowance enables eligible businesses to reduce their NIC bill by up to £10,500 per year, offering some relief to smaller employers.
At present, if employers incur an NIC liability of greater than £100,000 then they can’t claim Employment Allowance (EA). From 6 April 2025 this cap will be removed. However, this will not fully negate the impact of the NIC increase for many businesses, particularly those with larger payrolls.
It is worth highlighting that the Employment Allowance remains unavailable to companies where the Director is the only employee.
Employer contributions table at different salary levels before taking account of the Employment Allowance.
| Tax Year 24/25 | Tax Year 25/26 | ||
| Salary | Ers NICs | Ers NICs | Increase |
| £10,000 | £124 | £750 | £626 |
| £20,000 | £1,504 | £2,250 | £746 |
| £30,000 | £2,884 | £3,750 | £866 |
| £40,000 | £4,264 | £5,250 | £986 |
| £50,000 | £5,644 | £6,750 | £1,106 |
| £60,000 | £7,024 | £8,250 | £1,226 |
| £70,000 | £8,404 | £9,750 | £1,346 |
| £80,000 | £9,784 | £11,250 | £1,466 |
How will businesses be affected?
The British Retail Consortium has predicted that rising employer NICs could lead to job losses and price increases in some sectors. Industries reliant on a large workforce – such as retail, hospitality, and manufacturing – could feel the pressure most.
Micro-businesses, with just a few employees, may be hit the hardest. Unlike larger firms, they often lack the financial flexibility to absorb additional payroll costs. Many are already dealing with rising expenses in other areas, such as energy bills and supply chain price increases. These businesses may face difficult choices, from delaying expansion plans to reducing staff hours or increasing prices for customers.
Steps businesses can take
While the NIC increase is unavoidable, there are steps businesses can take to manage the financial impact:
- Part time possibilities: employers could consider taking one or two part-time employees instead of one full-time employee to access an additional secondary threshold.
- Employee mix: if employers are adversely affected by the changes they may wish to revisit their employee mix. For example, consider recruiting employees under the age of 21 or armed forces veterans who have recently left armed forces to take advantage of the higher secondary thresholds for these members of staff.
- Use the Employment Allowance: Eligible businesses should ensure they claim the full allowance to reduce their NIC liability.
- Consider workforce planning: Outsourcing non-core roles could help mitigate costs.
- Look at salary sacrifice schemes: Tax-efficient benefits, such as increased pension contributions, cycle-to-work schemes, or electric vehicle salary sacrifice, could reduce employer and employee NICs. Implementing these can offer savings while keeping staff motivated.
- Review payroll budgets: Employers should reassess staffing costs and adjust financial forecasts to factor in the increased NIC burden.
Final thoughts
With the April 2025 NIC increase on the horizon, businesses must plan to manage rising employment costs effectively. Making informed decisions can help mitigate the financial impact and ensure continued stability.
At Team SAS, we help businesses understand and adapt to tax changes, ensuring they remain financially resilient.
If you would like to discuss this matter with an Accountant and Trusted Business Adviser get in touch with us. We are accountants in Reading and offer a range of financial outsourcing services and virtual CFO services. For a free no obligation consultation email info@teamsas.co.uk or call 0118 911 3777.
Disclaimer: The information contained in this website is for general information purposes only. The information is provided by Specialist Accounting Solutions Ltd and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
