Big news for business owners—employing staff is about to get pricier. From April 2025, employers’ National Insurance (NI) contributions are going up, which means higher payroll costs for many businesses.
But don’t panic just yet! There’s some good news, too—the Employment Allowance is increasing, and that could help offset some of the extra costs. Let’s break it down so you know exactly what’s changing and how to keep your NI bill under control.
What’s changing with employer NI?
Right now, businesses pay employer NI on employees’ earnings over £9,100 per year. But from 6 April 2025, two major changes kick in:
- The employer NI rate jumps from 13.8% to 15%.
- The NI threshold drops from £9,100 to £5,000, so you’ll start paying NI on lower earnings.
What does this mean for your business? More of your payroll budget will be eaten up by NI costs. The government predicts:
- 250,000 businesses will see their NI bill go down.
- 940,000 will see an increase.
- 820,000 won’t see much change.
On top of that, minimum wage rates are increasing from 6 April 2025, which means even higher payroll costs for many employers. If you have staff on minimum wage, you’ll need to factor in these rises when planning your payroll budget.
What is the employment allowance and how can it help?
The Employment Allowance is designed to reduce the amount of employer NI you pay. Right now, eligible businesses can claim up to £5,000 per tax year, but from April 2025, this will increase to £10,500.
Even better, the restriction that stopped businesses with employer NI bills over £100,000 from claiming will be scrapped. That means more businesses can now benefit.
With these changes, 865,000 businesses are expected to pay no employer NI at all in 2025.
How do you claim the allowance?
Good news—it’s pretty simple. You need to apply for the Employment Allowance each tax year (6th April to 5th April). The sooner you claim, the sooner you’ll see the savings.
You can claim via:
- Your payroll software, or
- HMRC’s Basic PAYE Tools.
Most payroll software lets you tick a box to claim the allowance when submitting an Employer Payment Summary (EPS) to HMRC. If yours doesn’t, you can do it manually using HMRC’s free PAYE tools.
Once you’ve submitted your claim, there’s no waiting around for confirmation—you can start applying the allowance straight away.
How this could affect a small business
Let’s say you run ABC Services Ltd and employ three full-time staff. Here’s what these changes might look like for you:
In 2024/25:
- You calculate your employer NI at 13.8% on salaries over £9,100, coming to £9,895.
- You claim the £5,000 Employment Allowance, so you end up paying £4,895.
In 2025/26:
- Your employer NI is now 15%, and you start paying NI on salaries over £5,000—this brings your total bill to £12,600.
- With the new £10,500 Employment Allowance, your final bill is just £2,100, meaning you actually save £2,795 compared to what you paid before the changes.
Even with the NI increase, some businesses will actually pay less thanks to the boosted Employment Allowance, but it’s important to consider all payroll changes—including wage increases—when budgeting for the year ahead.
How can businesses tackle the National Insurance hike?
The recent rise in National Insurance contributions means businesses will need to rethink their approach to budgeting and staffing. Here are a few smart ways to stay ahead of the game:
Re-evaluate payroll plans: It’s time to take another look at those payroll figures! With the NI rates going up and the threshold dropping, businesses should plan ahead to absorb the financial impact. Updating your payroll budgets now can help avoid any surprises later on.
Streamline workforce structure: A little shake-up could go a long way. Consider tweaking team roles, or even introducing more flexible working arrangements, to help keep costs under control. By fine-tuning your workforce and boosting productivity, you might be able to balance out some of the extra NI charges.
Explore salary exchange options: Looking for a creative solution? Salary sacrifice schemes allow employees to swap part of their pay for perks, like extra holiday or a pension contribution, which can reduce NI costs for both sides. It’s a win-win!
How Henry R Davis & Co. can help
We know that tax changes can feel overwhelming, but that’s where we come in. At Henry R Davis & Co., we help businesses like yours stay on top of payroll changes, making sure you’re getting every relief and allowance you’re entitled to.
With employer NI increases and minimum wage rises happening at the same time, it’s more important than ever to plan ahead. Whether it’s setting up payroll, claiming the Employment Allowance, or adjusting for wage increases, our team is here to support you.
Need help making sense of it all? Get in touch with us today, and we’ll make sure you’re ready for April 2025 without any nasty surprises!