Employers’ NICs
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Understanding the Changes to Employer National Insurance Contributions (NICs) and Employment Allowance for 2025/26

In the October 2024 Budget, significant changes were announced to Employer National Insurance Contributions (NICs), which took effect from 6 April 2025. These changes include an increase in the secondary Class 1 NICs rate and a reduction in the secondary threshold. However, there is a silver lining – the Employment Allowance has been substantially increased, providing relief to many small and medium-sized businesses. In this article, we will break down these changes, explain who is affected, and provide practical examples to help you understand the impact on your business.

What Are the Key Changes to Employer NICs for 2025/26?

Increase in Secondary Class 1 NICs Rate

  • The secondary Class 1 NICs rate for employers will increase from 13.8% to 15% for 2025/26.
  • This increase means that employers will pay a higher percentage of NICs on their employees’ earnings above the secondary threshold.

Reduction in the Secondary Threshold

  • The secondary threshold (the point at which employers start paying NICs on employee earnings) will be reduced to £96 per week (£417 per month or £5,000 per year) in 2025/26.
  • This is a significant reduction from the 2024/25 threshold of £175 per week (£758 per month or £9,100 per year).
  • As a result, employers will start paying NICs on a larger portion of employee earnings.

No Change to Upper Secondary Thresholds

  • The upper secondary thresholds for:

    1. Under 21s

    2. Apprentices under 25

    3. Veterans in their first year of civilian employment

    4. Employees in special tax sites (such as freeports)

These remain at £967 per week (£4,189 per month; £50,270 per year).

The Employment Allowance: A Helping Hand for Small Employers

To offset the impact of these NICs increases, the Employment Allowance has been increased from £5,000 to £10,500 for eligible employers from 6 April 2025. This allows eligible employers to reduce their secondary Class 1 NICs bill by up to £10,500 for the year.

Who Is Eligible for the Employment Allowance?

  • The allowance is available to most employers, but there are some exclusions:

    1. Personal companies (where the sole employee is also a director) are not eligible.

    2. Larger employers with a secondary Class 1 NICs bill of £100,000 or more in the previous tax year can claim the allowance in 2025/26. This is a change from previous years, where the allowance was only available to employers with a bill of less than £100,000.

How the Employment Allowance Works

  • Eligible employers can claim the allowance against their secondary Class 1 NICs liability.
  • The allowance is applied monthly until it is fully used.
  • If an employer’s NICs liability is less than the allowance, the allowance is capped at the amount of the liability.

Claiming the Employment Allowance

  • The Employment Allowance is not given automatically – it must be claimed through the employer’s Real Time Information (RTI) software.
  • Employers can claim the allowance at any time during the tax year.
  • Claims can be made up to four years after the end of the tax year (e.g., by 5 April 2029 for claims for 2024/25).

Practical Examples: How the Changes Affect Different Employers

Example 1: A Small Business with One Employee

John runs a small plumbing business and has one employee who earns £15,000 per year. His secondary Class 1 NICs calculation for 2025/26 is as follows:

  • Employee Earnings: £15,000
  • Secondary Threshold: £5,000
  • Taxable Earnings for NICs: £15,000 – £5,000 = £10,000
  • NICs at 15%: £10,000 × 15% = £1,500
  • Employment Allowance: £1,500 (capped at the NICs liability)
  • Net NICs Liability: £0

John’s small business effectively pays no secondary Class 1 NICs for 2025/26 due to the increased Employment Allowance.

Example 2: A Medium-Sized Business with Multiple Employees

ABC Marketing Ltd has 10 employees, each earning £25,000 per year. The company’s total secondary Class 1 NICs liability for 2025/26 is calculated as follows:

  • Employee Earnings (per employee): £25,000
  • Secondary Threshold: £5,000
  • Taxable Earnings for NICs (per employee): £25,000 – £5,000 = £20,000
  • NICs per Employee: £20,000 × 15% = £3,000
  • Total NICs for 10 Employees: £3,000 × 10 = £30,000
  • Employment Allowance: £10,500
  • Net NICs Liability: £30,000 – £10,500 = £19,500

By claiming the Employment Allowance, ABC Marketing Ltd reduces its NICs bill by £10,500.

Example 3: A Large Business with a High NICs Bill

XYZ Manufacturing Ltd has a secondary Class 1 NICs liability of £150,000 in 2024/25. Despite the increase in the Employment Allowance, the company’s NICs bill is only slightly reduced:

  • Secondary Class 1 NICs Liability for 2025/26: £160,000
  • Employment Allowance: £10,500
  • Net NICs Liability: £160,000 – £10,500 = £149,500

For large employers, the increase in the Employment Allowance has a relatively small impact compared to the rise in the NICs rate.

Why the Changes to Employer NICs Matter

The increase in the secondary Class 1 NICs rate and the reduction in the secondary threshold mean that many employers will pay more in NICs in 2025/26. However, the substantial increase in the Employment Allowance offers some relief, especially for small and medium-sized businesses.

Winners:

  • Small Employers: Those with a NICs liability below £10,500 will pay no secondary NICs at all.
  • Medium-Sized Employers: Businesses with multiple employees can significantly reduce their NICs bill by maximizing the Employment Allowance.

Losers:

  • Large Employers: While they can claim the Employment Allowance, the increase in the NICs rate will significantly increase their total NICs bill.
  • Personal Companies: Those with a single director-employee are not eligible for the Employment Allowance and will face higher NICs costs.

Practical Tips for Employers

  1. Check Your Eligibility for the Employment Allowance: Ensure that your business qualifies and remember to claim it through your payroll software.

  2. Review Your Payroll Costs: Calculate how the increased NICs rate and reduced threshold will impact your business.

  3. Optimize Your Payroll Structure: Consider adjusting employee salaries to minimize NICs where appropriate.

  4. Monitor the Impact on Cash Flow: The increase in NICs may affect your business’s monthly cash flow, especially for larger employers.

  5. Seek Professional Advice: If you are unsure how these changes will affect your business, consider speaking to a payroll expert.

 

Optimize Your Payroll Costs with Merranti Accounting

The 2025/26 changes to Employer NICs and the Employment Allowance present both challenges and opportunities for businesses. At Merranti Accounting, we help you:

  • Understand how the changes will affect your payroll costs.
  • Ensure you are maximizing your Employment Allowance.
  • Implement payroll strategies that minimize your NICs liability.

 

Don’t let rising NICs eat into your profits. Get expert advice from Merranti Accounting.

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