The employer national insurance increase 2025 has landed, and for many small business owners, it is one of the most significant cost rises in years. The rate has gone up, the threshold has come down, and your payroll bill has grown overnight.
This post breaks down exactly what changed, how much it could be costing you, and the practical steps you can take right now to manage the impact and protect your cash flow.
What Changed with Employer National Insurance in April 2025?
From 6 April 2025, two changes took effect at the same time. Together, they pack a serious punch for any business with employees on the payroll.
First, the employer National Insurance rate rose from 13.8% to 15%. That is a 1.2 percentage point increase on every pound of earnings above the secondary threshold. Second, the secondary threshold dropped from £9,100 per year to £5,000 per year. That is, the new threshold is roughly £416 per month. So not only are you paying at a higher rate, but you are paying it on a larger chunk of each employee’s salary.
To put it simply: both levers moved in the wrong direction for employers at exactly the same time.
The one piece of good news is the Employment Allowance. This increased from £5,000 to £10,500, which can offset the rises entirely for eligible smaller employers. More on that shortly.
These changes were announced in the October 2024 Autumn Budget and came into effect at the start of the new tax year. According to HMRC’s official guidance on employer rates and thresholds for 2025/26, these rates now apply to all qualifying employers across the UK.
How Much Is the Employer NI Increase Costing You?
The best way to understand the impact is to look at a real example. Say you pay an employee a salary of £30,000 per year.
| Tax Year | Rate | Secondary Threshold | Employer NI on £30k Salary |
| 2024/25 | 13.8% | £9,100 | £2,884.20 |
| 2025/26 | 15% | £5,000 | £3,750.00 |
| Difference | +£865.80 per employee |
That is an extra £865.80 per year for a single employee on £30,000. If you have five employees on similar salaries, you are looking at over £4,300 in additional costs annually. For part-time or lower-paid workers, the impact of the lower threshold hits proportionally harder.
This is why understanding your full payroll picture matters so much right now. If you want to make sure your records are accurate before running these calculations, our bookkeeping services can help you get your financial data in order quickly.
Employer NI Small Business UK: Does the Employment Allowance Help?
The Employment Allowance increase is the government’s concession to smaller businesses. It now covers up to £10,500 of your employer NI liability each tax year, up from £5,000.
If your total employer NI bill is less than £10,500, you could pay no employer NI at all. For businesses with a modest headcount, this allowance can absorb all of the rate increase and then some.
Who Can Claim the Employment Allowance?
Not every employer qualifies. You cannot claim if the director is the only employee paid above the secondary threshold. Limited company directors who pay themselves a salary and take dividends, with no other employees, are typically excluded.
If you are unsure whether you qualify, this is worth checking before you assume you are covered. HMRC’s guidance on claiming the Employment Allowance sets out the eligibility rules clearly.
Five Ways to Reduce Your Employer NI Bill
Whether or not you qualify for the Employment Allowance, there are practical steps you can take to keep your employer NI costs as low as possible.
1. Use Salary Sacrifice for Pension Contributions
Salary sacrifice arrangements let employees exchange part of their salary for a pension contribution. Because the contribution comes out before National Insurance is calculated, both you and your employee pay less NI. It is one of the most effective and HMRC-approved ways to reduce your payroll costs. Our blog post on seamless payroll with Xero covers how a well-run payroll process supports exactly this kind of planning.
2. Review Your Salary and Dividend Mix
For limited company directors, the split between salary and dividends still matters. Dividends are not subject to National Insurance. Taking a lower salary and higher dividends can reduce employer NI, but you need to get the balance right to stay tax-efficient overall. Our personal tax return service can help you model the most efficient structure for your income.
3. Claim the Employment Allowance (If You Have Not Already)
If you are eligible, make sure you are actually claiming it. It does not apply automatically. You need to claim through your payroll software each tax year. If you missed it in a previous year, you can claim up to four years back.
4. Consider the Timing and Structure of Any New Hires
Before taking on a new employee, think carefully about the total employment cost, not just the salary. At 15% employer NI on earnings above £5,000, the real cost of a £25,000 hire is closer to £28,000 once NI is factored in. For some roles, self-employed contractors or part-time arrangements may offer flexibility, though you need to be careful around IR35 and employment status rules.
5. Review Benefit-in-Kind Arrangements
Some benefits attract Class 1A NI, which is also now at 15%. Review the benefits you provide to employees and assess whether they are still cost-effective. Some benefits, such as pension contributions, cycle-to-work schemes, and childcare vouchers, remain NI-exempt and are worth maximising.
Reviewing Your Cash Flow and Budget
The combined effect of a higher rate and a lower threshold means your monthly payroll costs have increased without any change in headcount or salaries. If you have not already updated your financial forecasts to reflect this, now is the time.
Sit down and calculate your new employer NI liability across all employees. Compare it to what you paid last year. Then look at where that extra cost sits in your budget. Can it be absorbed, or does it need to trigger a review of pricing, margins, or staffing levels?
For many small businesses, the answer will be a combination of things. Some cost can be offset through the employment allowance and salary sacrifice arrangements. Some may need to be passed on through adjusted pricing. And some will simply require tighter control of other overheads.
The key is not to ignore it. Businesses that plan for this increase now will be in a much stronger position than those who only notice the impact when cash flow starts to tighten later in the year.
Good cash flow management is not just about reacting to changes. It is about building visibility into future costs so you can make informed decisions. If you would like to strengthen your financial planning, our post on maximising profits and minimising tax for limited companies covers several strategies that remain relevant in the current tax environment.
When Should You Speak to an Accountant?
If you have not reviewed your payroll setup since the April 2025 changes, now is the right time. An accountant can help you work through several things that are difficult to assess on your own.
They can check whether you are claiming the employment allowance correctly and whether your salary and dividend structure is still the most efficient option for you as a director. They can also model the cost of planned hires and help you decide whether salary sacrifice arrangements make sense for your team.
Payroll errors and missed claims are surprisingly common, particularly when the rules change. Getting expert eyes on your setup costs less than you might think, and it can save you significantly more than that in unnecessary employer NI.
If you are also looking at the personal tax side, particularly if your income structure has changed as a result of these payroll adjustments, our personal tax return service can help you make sure everything is filed correctly and efficiently.
Get Help Managing Your Employer NI Costs
The employer national insurance increase 2025 is a real challenge for UK small business owners and limited company directors. But with the right planning and the right team behind you, you can manage the extra cost and protect your profits.
At eAccounts, we are a Cardiff-based online chartered accountancy firm with over 1,000 business clients across the UK. We specialise in payroll, tax planning, and bookkeeping for limited companies and small businesses. Our dedicated two-person eTeam gives you personal, consistent support at a fixed monthly price, with Xero included.
Get a free quote today or book a free consultation to talk through your payroll and tax planning options.
FAQs
What is the employer National Insurance rate from April 2025?
The employer National Insurance rate in the UK rose to 15% from 6 April 2025. This is up from 13.8% in the previous tax year. The secondary threshold also dropped from £9,100 to £5,000, meaning employer NI kicks in earlier on each employee’s salary.
Has the Employment Allowance changed for 2025/26?
Yes. The Employment Allowance increased to £10,500 for the 2025/26 tax year, up from £5,000. Eligible employers can offset this amount against their employer NI liability. If your total employer NI bill is under £10,500, you may pay nothing at all, provided you qualify.
Does the employer NI increase affect sole traders?
The employer NI increase only applies to employers who pay employees. Sole traders who operate alone and do not have employees are not affected by the secondary threshold change. However, sole traders who employ staff will face the same increased costs as limited companies.
Can I reduce my employer NI through salary sacrifice?
Yes. Salary sacrifice is one of the most effective ways to reduce employer NI legally. When an employee gives up part of their salary in exchange for a pension contribution, neither party pays NI on that portion. The arrangement must be set up correctly and agreed in writing as part of the employment contract.
How do I claim the Employment Allowance in 2025?
You claim the Employment Allowance through your payroll software each tax year. It is not applied automatically. When you submit your first Employer Payment Summary of the tax year, you simply indicate that you are claiming the allowance. Your payroll software should prompt you to do this. If you are unsure, your accountant or payroll provider can help.
