Employer’s NICs Just Got More Expensive — But the Employment Allowance Has Doubled: Here’s What It Means for Your Business

As of 6 April 2025, the cost of employing staff has gone up for most UK businesses—but for some, the blow is softened (or even eliminated) thanks to a major change to the Employment Allowance (EA).

The Autumn Statement 2024 introduced three key changes to Employer’s National Insurance (NI) contributions that came into effect at the start of the 2025/26 tax year. Understanding these changes is essential for business planning, especially if you’re budgeting for staff costs or payroll decisions.

Let’s unpack what’s changed, who wins, who loses, and how your business can make the most of the new rules.

---

📈 What Changed in April 2025?

Three major updates to Employer’s NI contributions are now in effect:

1. The Employer’s NIC rate increased from 13.8% to 15%.

2. The threshold at which Employer’s NIC kicks in dropped from £9,100 to £5,000.

3. The Employment Allowance was increased from £5,000 to £10,500, and the previous £100,000 NI liability cap was removed—meaning larger employers may now qualify for the allowance too.

---

What Is the Employment Allowance?

The Employment Allowance (EA) lets eligible businesses reduce their annual Employer’s National Insurance bill by a set amount.

With the new £10,500 limit, this effectively means some businesses could employ several staff members without paying any Employer’s NIC at all—if they structure things right.

⚠️ Note: The EA only applies to Employer’s NICs—not to the employee’s portion (which is unchanged at time of writing).

---

Who Benefits from the Changes?

Let’s take a simple example using the National Living Wage (NLW) for 2025/26:

• NLW = £12.21/hour
• Full-time employee (35 hours/week) earns: £22,222/year
• NICs = (22,222 – 5,000) x 15% = £2,583.30

With four full-time employees at this rate, the total Employer NICs would be:

4 x £2,583.30 = £10,333.20

Under the new rules, the £10,500 Employment Allowance completely covers this NICs liability, meaning no Employer’s NIC is payable.

This supports what Chancellor Rachel Reeves said when announcing the policy:

“This will allow a small business to employ the equivalent of four full-time workers on the national living wage without paying any National Insurance on their wages.”

---

Why the Threshold Drop Matters

Before April 2025, Employer’s NICs only applied on earnings above £9,100. That has now dropped to £5,000, meaning:

• More wages are subject to Employer’s NICs
• Businesses will see higher Employer NIC bills unless the EA covers them

---

Strategic Insight: Part-Time May Be Better Than Full-Time

Here’s where things get interesting.

Let’s say instead of hiring four full-time staff at 35 hours/week (total 140 hours), you hire nine part-time staff working 20 hours/week (total 180 hours).

At the same NLW rate:

• 20 hours/week = £244.20/week or £12,698/year
• NICs = (£12,698 – £5,000) x 15% = £1,155 per employee
• 9 employees = 9 x £1,155 = £10,395 total NICs

Still under the £10,500 EA limit.

✅ Result: You get 40 more working hours per week than the full-time setup, and still pay no Employer’s NICs.

This may not suit every business operationally, but it shows the kind of cost-efficiency the new rules make possible.

---

A Note for Employees Too

The system also creates an incentive for individuals to spread income across multiple small jobs.

• One job earning £36,000/year → Employee NICs = £1,874.40
• Three jobs at £12,000 each → No NICs at all, as each job is under the £12,570 employee threshold

However, this only works if the employee’s roles are not aggregated under HMRC’s rules. Aggregation applies if jobs are with connected employers or through umbrella arrangements.

---

Are You Eligible for the Employment Allowance?

Most businesses can claim, but there are a few key eligibility rules:

✅ You can claim EA if:

• You’re an employer (limited company, sole trader, partnership, charity, etc.)
• You have at least one employee paid above the £5,000 threshold
• You’re not a single-director company with no other staff

❌ You cannot claim if:

• You employ only domestic or household staff
• You’re a single-director company with no other employees
• You’re part of a group and have already claimed EA elsewhere (or need to split it between companies)

⚠️ Important: The EA must be claimed each year through your payroll software—it’s not automatic.

---

Larger Employers – Now Back in the Game

Before April 2025, if your Employer’s NIC liability was £100,000 or more in the previous tax year, you couldn’t claim the EA.

That cap has now been removed. Larger businesses with higher payrolls may now be eligible again—potentially saving £10,500 per year.

💼 If your business was previously excluded from claiming the EA due to the £100,000 cap, it’s worth checking your current eligibility now.

---

Summary: Who Wins, Who Pays More?

---

Final Tips from Merranti Accounting

• Check your payroll structure: Consider how part-time vs. full-time roles impact your NICs position.
• Review your eligibility for EA annually: Especially if your business has grown or changed structure.
• Adjust staff budgets and recruitment plans to make best use of the new EA allowance.
• Use payroll software to automatically apply the EA to reduce your monthly NIC bill.

---

Need Help with NIC Planning?

At Merranti Accounting, we work with businesses of all sizes to optimise payroll costs, ensure compliance, and take advantage of tax reliefs like the Employment Allowance.

If you’re unsure how the new NICs rules impact your business—or want to run the numbers—get in touch with our team. We’ll review your setup and help you make the most of the updated tax landscape.