April 2025 Employer NIC Increases: What You Need to Know
From 6 April 2025, significant changes to Employers’ National Insurance Contributions (NICs) will take effect, impacting businesses of all sizes. The rise in the employer NIC rate, alongside a reduction in the Secondary Threshold, means that businesses will need to prepare for increased payroll costs. However, an increase in the Employment Allowance (EA) could offer some relief to eligible businesses. This blog will outline the key changes, their impact, and what steps businesses should take to prepare.
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Increase in Employer NIC Rate
From 6 April 2025, the rate of employer Secondary Class 1 NICs will increase from 13.8% to 15%. This increase applies to employees’ earnings above the Secondary Threshold (see below) and will also extend to Class 1A and 1B NICs, which apply to expenses and benefits provided to employees.
For many businesses employing staff, this will likely mean higher payroll costs. Employers should prepare for higher NIC costs per employee, which will have a direct impact on payroll expenses, cash flow management and profitability.
Reduction of the Secondary Threshold
Currently, employers start paying NICs on employees’ earnings above £9,100 per year. However, from April 2025, the Secondary Threshold will be reduced to £5,000 per year. This means that more employees will be subject to employer NICs at an earlier point, further increasing the compliance burden and cost of employing staff.
For context:
- In 2024/25, employers paid NICs once an employee’s earnings exceeded £9,100.
- From 2025/26, NICs will apply to earnings above £5,000, raising employer payroll costs for each employee.
The upcoming changes will likely increase the annual payroll compliance burden for small businesses, part-time employers, and those hiring lower-paid workers.
Employment Allowance: Higher Relief for Employers
To help offset the cost of these increases, the annual Employment Allowance (EA) is also being expanded.
This means that from April 2025:
- The £100,000 employer NIC threshold (which previously restricted larger employers from claiming) will be abolished.
- This change simplifies compliance, as businesses previously restricted by State Aid rules will no longer need to account for the above threshold.
- The maximum allowance will increase from £5,000 to £10,500.
As a result of the above, more businesses will qualify for EA and can offset up to £10,500 of their Employer NIC liability each year.
However, not all businesses qualify for the Employment Allowance. While most businesses and charities can claim it, public sector bodies, businesses primarily providing public services, and companies with a single director as the only employee liable for employer NICs remain ineligible.
The Financial Impact on Employers
While the increase in the Employment Allowance is a welcome change, the combined effect of the Secondary Threshold reduction and Employer NIC rate increase will likely lead to higher payroll costs for businesses.
Below is an example illustrating the potential impact of the upcoming changes:
Illustrative Examples: Employer NIC Increases in 2025/26
Employee earning the average UK salary of £37,000 per year:
- 2024/25 employer NIC cost: £3,850
- 2025/26 employer NIC cost: £4,800
- Annual increase: £950 per employee
Director drawing a salary up to the Personal Allowance of £12,570:
- 2024/25 employer NIC cost: £479
- 2025/26 employer NIC cost: £1,136
- Annual increase: £657
For businesses that exceed the annual Employment Allowance, the increased NIC costs per employee will need to be factored into budgeting and cash flow projections.
Next Steps for Businesses
To prepare for these changes, businesses should consider the following steps:
- Review Payroll Costs: Calculate the impact of the NIC rate increase and threshold reduction on your workforce costs.
- Employment Allowance Eligibility: Determine if your business will benefit from the increased £10,500 allowance and ensure your payroll system claims the correct amount.
- Adjust Cash Flow Forecasts: Plan for higher employer NIC outgoings in the 2025/26 tax year.
- Update Payroll Software: Most software providers will update NIC calculations automatically, but ensure your system is compliant before April 2025.
- Consider Workforce Planning: If payroll costs rise significantly, businesses may need to revisit hiring decisions or salary structures.
How We Can Help
The Employer NIC changes will likely increase payroll costs and compliance burdens for many businesses. At Veritas ATS, we can help you:
- Assess the financial impact of NIC increases on your business
- Claim Employment Allowance and other reliefs
- Ensure payroll compliance ahead of April 2025
- Advise on tax-efficient remuneration structures for directors and employees
Get in Touch
If you need assistance reviewing your payroll strategy or understanding the impact of these changes on your business, contact us today to arrange a free initial consultation.
This article provides general information and should not be considered professional advice. It reflects legislation and practices at the time of writing, which may change. Individual circumstances vary, so please consult us before taking any action. We accept no responsibility for financial loss arising from actions taken without our written advice.
Liam O'Riordan
As Principal at Veritas ATS, I help start-ups, owner-managed businesses, and individuals simplify accounting and tax, providing clear, practical solutions tailored to their needs.
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