Employers’ National Insurance Contributions (NICs) Set to Rise from April 2025
The Autumn Budget 2024 brought significant changes to employers’ National Insurance contributions (NICs), with the Chancellor targeting businesses to generate £25 billion of the additional £40 billion required in tax revenues.
From 6 April 2025, employers will face:
- An increase in the secondary Class 1 NIC rate from 13.8% to 15%.
- A reduction in the secondary threshold from £9,100 to £5,000, meaning more of employees’ earnings will be subject to NICs.
- An increase in the employment allowance from £5,000 to £10,500, providing relief for small employers.
- Higher Class 1A and Class 1B NICs on benefits-in-kind and PAYE settlement agreements, also rising to 15%.
While the employment allowance increase will shield some smaller employers, larger businesses will see a significant rise in costs.
Understanding the Changes in Employers’ NICs
Employers pay secondary Class 1 NICs on employee earnings above the secondary threshold. Unlike employees’ NICs, which have different bands, employer contributions are charged at a flat rate once earnings exceed the threshold.
Current and Future Secondary Thresholds
- 2024/25: £9,100 per year (£758 per month, £175 per week).
- 2025/26: £5,000 per year (£416 per month, £96 per week).
This means employers will start paying NICs on a greater proportion of each employee’s salary.
Current and Future Employer NIC Rates
- 2024/25: 13.8%.
- 2025/26: 15%.
Impact of the NIC Increase on Employers
The combined effect of a lower threshold and a higher NIC rate means that businesses will pay more NICs per employee.
The following table shows the increase in employer contributions across different salary levels:
| Earnings (£) | NICs 2024/25 (£) | NICs 2025/26 (£) | Increase (£) |
|---|---|---|---|
| 7,500 | 0 | 375 | 375 |
| 10,000 | 124.20 | 750 | 625.80 |
| 20,000 | 1,504.20 | 2,250 | 745.80 |
| 30,000 | 2,884.20 | 3,750 | 865.80 |
| 40,000 | 4,264.20 | 5,250 | 985.80 |
| 50,000 | 5,644.20 | 6,750 | 1,105.80 |
| 60,000 | 7,024.20 | 8,250 | 1,225.80 |
| 70,000 | 8,404.20 | 9,750 | 1,345.80 |
| 80,000 | 9,784.20 | 11,250 | 1,465.80 |
| 90,000 | 11,164.20 | 12,750 | 1,585.80 |
| 100,000 | 12,544.20 | 14,250 | 1,705.80 |
The financial burden escalates with the number of employees.
Employment Allowance: Who Benefits?
The employment allowance, which reduces the amount of NICs payable, will increase from £5,000 to £10,500 in 2025/26.
✔ Small employers who pay less than £10,500 in NICs annually will not pay any employer NICs at all.
✔ The eligibility cap of £100,000 NIC liability per year will be removed in 2026, meaning larger employers will also benefit.
✖ The allowance remains unavailable to personal companies where the sole employee is also a director.
Impact of NIC Changes on Different Employers
Case Study 1: A Small Business Benefitting from the Employment Allowance
A Ltd has three employees earning £10,000, £20,000, and £50,000 per year.
- 2024/25 NICs: £7,272.60 (after £5,000 allowance).
- 2025/26 NICs: £9,750, but fully covered by the new £10,500 employment allowance.
- Outcome: Despite higher NIC rates, A Ltd pays nothing in NICs in 2025/26.
Case Study 2: A Mid-Sized Employer with a Small Reduction in NIC Costs
B Ltd has six employees, each earning £30,000.
- 2024/25 NICs: £17,305.20, reduced to £12,305.20 after allowance.
- 2025/26 NICs: £22,500, reduced to £12,000 after allowance.
- Outcome: Due to the allowance increase, the business pays slightly less in NICs in 2025/26 than in 2024/25.
Case Study 3: A Large Employer Facing Higher Costs
C Ltd has 120 employees, with 100 earning £20,000 and 20 earning £40,000.
- 2024/25 NICs: £235,704.
- 2025/26 NICs: £330,000.
- After the £10,500 allowance: £319,500.
- Outcome: The company faces an £83,796 increase in NICs.
Case Study 4: Personal Service Company Without Employment Allowance
David runs a personal service company (PSC) and pays himself a £12,570 salary to maximise tax efficiency.
- 2024/25 NICs: £478.86.
- 2025/26 NICs: £1,135.50.
- Outcome: Despite the increase, paying a salary at this level is still tax-efficient as corporation tax relief offsets NIC costs.
Mitigating the Impact of Higher Employer NICs
1. Hiring Employees in NIC-Exempt Categories
Employers may reduce NIC liabilities by hiring:
- Workers under 21.
- Apprentices under 25.
- Armed forces veterans in their first year of civilian work.
- Employees working in special tax sites (freeports and investment zones).
These categories benefit from higher secondary NIC thresholds, delaying NIC liabilities until earnings exceed £50,270.
2. Adjusting Workforce Structure
Employers could consider:
- Hiring part-time employees instead of full-time to keep earnings below the NIC threshold.
- Outsourcing non-core roles to reduce payroll costs.
3. Reviewing Benefits-in-Kind
Class 1A NICs on taxable benefits will also increase to 15% from April 2026. Employers should:
- Offer tax-exempt benefits (such as pension contributions or cycle-to-work schemes).
- Review PAYE settlement agreements (PSAs) to assess whether covering employee tax liabilities remains cost-effective.
Conclusion
The increase in employers’ NIC rates and the reduction in the secondary threshold will place a significant burden on businesses from April 2025. While the employment allowance increase will help small employers, larger businesses will see substantial cost increases.
Employers should:
- Assess the impact of higher NICs on payroll costs.
- Consider restructuring workforce plans to reduce liabilities.
- Take advantage of NIC-exempt employee categories where possible.
- Review benefits-in-kind and payroll structures to maintain efficiency.
