The UK government’s announcement of a National Insurance (NI) rate increase for employers in 2025 has sparked concern among businesses. With the main Employers’ NI rate rising from 13.8% to 15%, companies face higher payroll costs at a time of economic uncertainty. Keep reading this blog to learn more about the changes, who they affect, and how employers can prepare.
Who pays Employer National Insurance?
Employers’ National Insurance is paid by business owners, not employees. If you have staff earning over £5,000 a year, you’re required to pay NICs on top of their wages. The higher your team’s earnings, the more you’ll contribute.
The 2025 rate increase: What changed?
As of April 6, 2025, UK employers are dealing with important changes to National Insurance (NI) contributions:
- Higher employer NI rate: The Class 1 secondary NI rate has risen from 13.8% to 15%, which raises the cost of employing staff.
- Lower secondary threshold: Employers now start paying NI on employee earnings above £5,000 per year, down from £9,100. This means more of your payroll is now subject to NI contributions.
- Bigger employment allowance: To ease the pressure, the Employment Allowance has been increased to £10,500 from £5,000 per year. The cap that previously blocked larger employers (with over £100,000 NI liability) from claiming this allowance has also been removed—making more businesses eligible.
These changes aim to boost funding for public services, but they also add financial pressure to employers’ budgets.
Calculating your NI costs
- Determine the Employee’s Annual Gross Salary.
- Subtract the Secondary Threshold (ST): £5,000 per year.
- Calculate the Taxable Amount: Subtract the ST from the gross salary.
- Apply the Employer NI Rate: 15% on the taxable amount.
Examples
- An employee earning £25,000 annually:
- Taxable amount: £25,000 – £5,000 = £20,000
- Employer NI contribution: £20,000 × 15% = £3,000
- An employee earning £55,000 annually:
- Taxable amount: £55,000 – £5,000 = £50,000
- Employer NI contribution: £50,000 × 15% = £7,500
How this will impact your payroll
The 2025 National Insurance (NI) increase directly affects your payroll expenses. With the employer NI rate rising from 13.8% to 15% and the threshold dropping from £9,100 to £5,000, you’ll now pay more NI for most employees — even those on lower salaries.
This means higher costs per employee, starting at lower income levels. As a result, your overall wage bill will go up. If you have a large team or rely on staff just above the minimum threshold, you may see a noticeable impact on your monthly payroll budget.
It’s now more important than ever to keep an eye on your payroll forecasting and cash flow planning. Tools like HMRC’s NI calculator or support from a payroll expert can help you stay accurate and on top of these changes.
What does this mean for your business?
The 2025 National Insurance increase brings more than just higher payroll costs—it could shift the way you operate. With employer contributions now starting at a lower threshold and at a higher rate, each new hire becomes more expensive. This may lead some businesses to slow down recruitment or reconsider expansion plans.
There’s also added pressure on wages. As employees feel the pinch of rising living costs, they might expect pay rises, putting more strain on already tight budgets. For businesses competing on an international scale, the higher employment costs could make UK operations less competitive.
Labour-heavy sectors like social care, retail, and construction will likely feel the biggest impact. If your business relies heavily on staff, now is the time to reassess costs, look for ways to improve efficiency, and plan ahead.
Practical ways to handle the cost increase
With the National Insurance (NI) rate increase in April 2025, businesses are facing new financial pressures. With the right planning and proactive measures, you can handle these changes smoothly. Here’s how you can navigate the impact of the increased costs:
Adjust financial forecasts and payroll systems
Reassess your cash flow projections to reflect the new payroll costs. Invest in automated payroll systems to ensure accuracy when calculating the updated NI rates and allowances, reducing the risk of errors.
Assess staffing and operational needs
Evaluate your staffing needs and consider reducing underutilised roles or offering voluntary redundancy packages. Streamline operations and look for ways to cut costs, such as renegotiating supplier contracts or adopting remote work models to reduce overhead.
Take advantage of the enhanced employment allowance
The Employment Allowance has increased to £10,500, and the eligibility cap has been removed, making more businesses eligible to claim it. This can significantly reduce your overall NI bill, so make sure to apply for the full allowance if your business qualifies.
Evaluate and adjust your pricing strategy
To help offset the increased costs, consider adjusting your pricing strategy. While raising prices might be an option, it’s important to do so thoughtfully, keeping in mind customer expectations and competitor pricing. Striking the right balance will ensure you don’t lose customers while managing your financial obligations.
Improve debt recovery and explore government support
Now is the perfect time to focus on improving your debt recovery processes. By ensuring timely payments and potentially offering early payment discounts, you can boost your cash flow. Additionally, stay informed about any government grants, tax reliefs, or support schemes that could help your business during this period of financial adjustment.
Engage employees and communicate openly
Be transparent with employees about any changes affecting wages or benefits. Clear communication helps build trust and ensures everyone understands the steps being taken to manage the impact of the NI increase.
By implementing these strategies, you can navigate the National Insurance rate rise with confidence, minimising its impact on your business and positioning yourself for continued growth.
How can an accountant help employers?
An accountant can help you adjust your financial forecasts to account for the higher payroll costs, ensuring no surprises down the road. They can also assist in claiming the enhanced Employment Allowance and guide you through other potential tax breaks. With their expertise, they can streamline your payroll systems, so you’re calculating everything correctly and looking for ways to cut costs where possible.
Conclusion
The 2025 Employers’ NI rise is challenging UK businesses, especially SMEs dealing with inflation and rising costs. However, by leveraging tax reliefs, improving efficiency, and planning strategically, you can soften the impact. Staying informed and adaptable helps turn this challenge into an opportunity for growth and resilience.
Have questions about the 2025 NI rise? Contact us for expert advice.
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