What does an increase in Employers National Insurance mean for your business?
The increase in employers national insurance contribution for 2025/2026 will increase the cost of employing people for many businesses, as they will now pay 15% rather than 13.8%. The earning thresholds for when the tax must be applied has been lowered to £5,000 from £9,100.
It is not all bad news, as small businesses will benefit from the increased employer allowance. In some cases, businesses may pay less employer NI in 2025/2026.
For directors who earn via a combination of salary and dividends, it is worth paying for a tax review with your accountant to see if your current remuneration strategy needs amending for the changes in 2025/2026.
A quick reminder of what national insurance is and how to claim the employers allowance.
What is Employers National Insurance?
National Insurance (NI) is the amount of money owed to HMRC depending on how much each employee earns, and it is made up of two payments: one from the employee and one from the employer.
The employee pays Class 1 (primary) National Insurance if they are under the State Pension age and earn above the Primary Threshold, currently (as of April 2023) £12,570 per tax year.
The employer pays Class 1 (secondary) National Insurance on the employee’s earnings if they are above the Secondary Threshold, which is currently (as of April 2023) £9,100 per tax year. This threshold is due to be redrawn at £5,000 from April 2025, as announced in the October 2024 budget statement.
The employer is responsible for managing Class 1 National Insurance and deducting the payable amount from the employee’s wages before the money is paid into their bank account.
This, plus the employer’s NI contribution, is paid directly to HMRC by the business, usually every month.
What is Employment Allowance?
Employment Allowance is a government initiative that allows eligible employers to reduce their National Insurance liability by up to £5,000 for the 2024/25 tax year.
This figure will increase to £10,500 in April 2025 as announced by the Chancellor in the October 2024 budget statement.
This initiative is designed to support smaller businesses with employment costs, allowing them to claim and pay less employers’ Class 1 National Insurance each time they run payroll until the full £10,500 allowance is spent or the tax year ends – whichever comes first.
A claim can also be made if the employer’s liability is less than 10,500.
It is important to remember that the Employment Allowance is per business, not per employee, and can only be claimed against one payroll if your business has multiple.
Once the employment allowance limit is met, any excess will need to be paid by the business to HMRC.
For example, if your business’ NI bill comes to £5,500 for 2024/2025, it will only need to pay the excess of £500. In 2025/2026 there would be nothing to pay.
Who is eligible to apply for Employment Allowance?
To be eligible for Employment Allowance, you must be:
- registered as an employer
- be a business or charity with documented employees
- have employers’ Class 1 National Insurance liabilities less than £100,000 in the previous tax year ( this limit is removed for 2025/2026)
- have two or more directors who earn more than the secondary threshold for Class 1 National Insurance contributions (if you are a limited company employing only directors).
How do you claim Employment Allowance?
You can claim Employment Allowance at any point during the tax year as part of the Real Time Information (RTI) submission you make to HMRC as part of your payroll process. Once your claim has been submitted, you can immediately start using your allowance.
Claiming Employment Allowance for past tax years
Is it possible to backdate your claim for Employment Allowance from previous tax years? However, you can only backdate your claim by as many as four years.
If you’re concerned about any measures announced in the Autumn Statement, our team will happily explain the significant changes and their potential impacts on your business.