Jeffrey Wade
National Insurance contributions have been a hot topic in recent years, with rates changing several times. The most recent change took place in April 2025, when the rate of employer's National Insurance contributions (NICs) increased from 13.8% to 15%. This change has had a significant impact on businesses, particularly small and medium-sized enterprises (SMEs), who are facing increased costs and challenges with planning for growth and expansion. To offset these costs, some businesses are considering salary sacrifice arrangements, such as pension contributions, or looking for ways to reduce overheads and increase efficiency. With the ongoing freeze on personal tax thresholds, many people are also concerned about the potential impact of these changes on their taxes.
| Characteristics | Values |
|---|---|
| Date of increase | 6 April 2025 |
| Who is affected | Employers |
| Change in rate | 13.8% to 15% |
| Threshold | Reduced from £9,100 to £5,000 per year |
| Employment Allowance | Increased from £5,000 to £10,500 |
| Eligibility threshold | £100,000 eligibility threshold removed |
| Number of employers affected | 1.2 million |
| Number of employers with decreased liability | 250,000 |
| Number of employers with increased liability | 940,000 |
| Number of employers with no change | 820,000 |
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What You'll Learn
- National Insurance contributions for employers will increase from 13.8% to 15%
- The threshold for employers paying National Insurance will decrease from £9,100 to £5,000 per year
- The Employment Allowance will increase from £5,000 to £10,500
- The £100,000 eligibility threshold has been removed
- National Insurance rates for workers have decreased
National Insurance contributions for employers will increase from 13.8% to 15%
National Insurance contributions have undergone several changes in recent years. After a reduction in National Insurance contributions for employees and the self-employed in April 2024, contributions for employers increased in April 2025.
The rate of National Insurance contributions (NICs) for employers will increase from 13.8% to 15%. This change came into effect on 6 April 2025. The increase in employer NICs is expected to raise additional revenue, which will be used to support the NHS and fund contributory benefits, such as the State Pension. This measure is estimated to generate £22.6 billion in additional spending over two years for the Department of Health and Social Care.
The increase in employer NICs will impact around 1.2 million employers. While some employers will experience a decrease in their liabilities, approximately 940,000 employers will face higher costs. This change, along with the increase in the National Minimum Wage, poses a significant challenge for small businesses.
To mitigate the impact of higher NICs, the government has introduced several measures. The Employment Allowance, which helps eligible employers reduce their NIC liability, has been raised from £5,000 to £10,500. Additionally, the previous restriction on claiming the allowance for employers with NIC liabilities exceeding £100,000 per year has been removed. These changes aim to support small businesses and offset the increased costs resulting from the NICs hike.
Businesses are adopting various strategies to manage the rise in employer NICs. Some are exploring salary sacrifice arrangements, such as pension contributions, to reduce payroll costs. Others are focusing on cost-cutting measures, including reducing overheads, consulting with staff to lower hours or make redundancies, and increasing prices.
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The threshold for employers paying National Insurance will decrease from £9,100 to £5,000 per year
The UK government's decision to lower the threshold for employers' National Insurance Contributions (NICs) from £9,100 to £5,000 per year has significant implications for businesses and their hiring strategies. This change, effective April 2025, is part of a broader set of reforms aimed at raising an additional £25 billion annually to bolster public services and reduce debt.
The reduction in the NICs threshold means that employers will now pay NICs on a larger portion of their employees' earnings, resulting in a notable increase in payroll costs. This rise in costs could potentially lead to a range of consequences for businesses, including the hospitality sector, which is particularly vulnerable to rising employment costs.
To mitigate these increased costs, businesses can take advantage of the government's simultaneous decision to increase the Employment Allowance from £5,000 to £10,500 per year. This allowance enables organisations to claim back NICs up to the new, higher limit. Additionally, the previous rule that prevented employers with NICs liability of over £100,000 per year from claiming the Employment Allowance has been removed. These changes provide some relief to businesses facing higher NICs expenses.
While the government has not directly increased National Insurance rates for workers, the impact of these changes will likely be felt by many. Employers facing higher costs may opt to hire fewer people or offer lower wage increases than they otherwise might have. This could particularly affect part-time workers and those in the hospitality sector, including younger workers and students, who may face reduced shifts or even redundancy.
To manage these increased costs, businesses are exploring strategies such as salary sacrifice pension contributions, which can help avoid rising payroll expenses. This approach not only assists businesses in reducing their National Insurance costs but also provides employees with a tax-efficient method to boost their pension savings.
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The Employment Allowance will increase from £5,000 to £10,500
The UK government has announced an increase in the Employment Allowance from £5,000 to £10,500 per year, effective from April 2025. This change is part of a series of reforms aimed at raising additional funds to support public services and reduce debt. The increase in the Employment Allowance is designed to offset the impact of rising payroll costs for businesses, particularly small businesses, and will allow organisations to claim back National Insurance contributions up to the new allowance limit.
Prior to this change, employers faced a steep rise in payroll costs due to the increase in National Insurance contributions, which went into effect in April 2025. This increase in National Insurance rates affected employers with larger teams the most. The government's decision to raise National Insurance rates was made to generate an additional £25 billion annually to fund public services and reduce debt. As a result, businesses faced higher costs, which could potentially lead to hiring fewer people or offering lower wage increases.
The Employment Allowance increase is targeted at small businesses, with the goal of minimising the financial burden on them. The previous Employment Allowance limit of £5,000 restricted the ability of small businesses to claim back National Insurance contributions. By doubling the allowance to £10,500, small businesses will be better equipped to manage their National Insurance liabilities. This change is expected to benefit approximately 865,000 employers, who will pay no National Insurance contributions in 2025.
In addition to the increased allowance, the government also removed the £100,000 liability cap, making more businesses eligible for the Employment Allowance. This removal of the cap ensures that all eligible businesses and charities can claim the allowance, regardless of their previous year's liabilities. However, it is important to note that there are still eligibility criteria that organisations must meet to qualify for the Employment Allowance. For example, organisations must have two or more directors earning above the secondary threshold for Class 1 National Insurance contributions.
The increase in the Employment Allowance is a welcome change for small businesses, providing them with some relief from the rising costs of employing staff. This change also encourages businesses to maintain their current staff numbers and salary levels, ensuring that employees do not bear the brunt of increased National Insurance contributions through reduced wages or job losses. Overall, the increase in the Employment Allowance is a positive step towards supporting small businesses and ensuring that employers can continue to invest in their workforce.
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The £100,000 eligibility threshold has been removed
National Insurance contributions have been a topic of discussion in the UK recently, with changes coming into force in April 2025. While the main rates of National Insurance and income tax for workers are not increasing, the amount of National Insurance paid by employers is set to rise. This means that many people will pay more tax overall, as the points at which they start paying or move to higher rates have not increased in line with inflation.
The removal of the £100,000 eligibility threshold is a significant change. Previously, employers with National Insurance Contribution (NICs) liabilities of more than £100,000 per year could not claim the Employment Allowance. This rule has now been scrapped, meaning that more businesses will be able to claim this allowance. The Employment Allowance has also increased from £5,000 to £10,500 per year, providing further relief for small businesses.
This change to the Employment Allowance eligibility condition means that it is now available to all eligible businesses, rather than being targeted specifically at small businesses. This shift is expected to raise revenue for the NHS and increase funding for contributory benefits, such as the State Pension, easing wider pressures on public finances.
While this change may benefit some businesses, it is important to note that overall, the increase in employer National Insurance contributions will result in higher payroll costs. This may lead to lower wages and profits, as well as a potential reduction in labour supply. To mitigate these increased costs, some businesses may consider switching to a salary sacrifice scheme, which can help reduce National Insurance costs while also offering employees a tax-efficient way to grow their pensions.
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National Insurance rates for workers have decreased
However, it's important to consider these cuts in the context of the wider economic situation. While workers' National Insurance rates have decreased, employers' National Insurance contributions have increased. This means that businesses are facing higher costs, which could impact their hiring decisions and ability to offer pay increases. As a result, workers may feel the effects of these changes in other ways. Additionally, there is an ongoing freeze on personal tax thresholds, which means that more people may be pulled into paying tax for the first time or move into higher tax bands as wages increase.
The changes to National Insurance rates are part of the government's efforts to raise additional revenue to support public services and reduce debt. The increase in employers' National Insurance contributions is expected to bring in an extra £25 billion per year. However, businesses are looking for ways to offset these higher costs, including through salary sacrifice schemes, which can help reduce payroll costs.
While the cuts to workers' National Insurance rates may provide some financial relief, the overall impact of these changes is complex. The increase in employers' contributions and the freeze on personal tax thresholds could offset some of the benefits of the reduced rates for workers. As such, it's difficult to predict the exact effect of these changes on individuals and businesses in the long run.
Overall, while National Insurance rates for workers have decreased, the broader economic context and other factors will influence the ultimate impact of these changes on individuals and the economy.
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Frequently asked questions
National Insurance contributions for employers will rise on 6 April 2025.
The rate of employer's National Insurance contributions (NICs) will increase by 1.2 percentage points to 15% from 6 April 2025.
Around 1.2 million employers will be impacted by the increase in National Insurance contributions. Around 250,000 employers will see their Secondary Class 1 NICs liability decrease, and around 940,000 will see it increase.
