The UK government has recently outlined significant National Insurance (NI) changes from April 2025, directly impacting employers in all sectors. With increased rates and lower thresholds, most businesses will be paying more for their payroll.

It is important to grasp these updates for astute budgeting, payroll compliance, and workforce planning.

TaxVAT Accountancy helps demystify what is changing and how best to prepare.

1. The Main Changes to National Insurance from April 2025

The new tax year introduces two significant changes for employers:

1.1 Employer NIC Rate Hike

The Secondary Class 1 NIC rate (employer paid) rises from 13.8% to 15%.

This will apply to most employees above the secondary threshold.

The change impacts businesses of all shapes and sizes, particularly those with big payrolls or shift workers.

1.2 Reduced Employer NIC Threshold

The secondary threshold — where employers begin paying NI contributions — will fall from £9,100 to £5,000 a year.

Employers will start paying NICs earlier for every employee, raising total contributions.

1.3 Increased Employment Allowance

To balance rising expenses, the Employment Allowance will rise from £5,000 to £10,500 annually for qualifying small businesses.

This does decrease the NIC bill but may still result in increases for medium and large companies.

2. How Employers Are Impacted by These Changes

It depends on your business size, payroll arrangement, and staff composition:

For Small Businesses:

The increased Employment Allowance gives some relief, but reducing the threshold results in even part-time or lower-paid employees now costing more NI.

For Medium to Large Businesses:

Businesses with large numbers of workers will notice a significant rise in monthly payroll obligations, which may impact profitability and the decision to hire.

For Employers with New Hires and Start-ups:

The changes may affect hiring strategy, particularly for positions that are at or around the minimum wage rate, as the cost per worker increases.

3. Example: Payroll Cost Impact

Let's examine a simplified example:

A worker earns £25,000 annually.

Employer NIC 2024–25 = £25,000 – £9,100 = £15,900 × 13.8% = £2,194

Employer NIC 2025–26 = £25,000 – £5,000 = £20,000 × 15% = £3,000

That's a £806 increase per year per employee — which can rack up fast for large teams.

4. What Employers Should Do Now

a) Reimagine Your Payroll Budget: Redo your NIC liability calculation for next year to prevent an April 2025 surprise.

b) Verify Eligibility for Employment Allowance: Whether your Class 1 NIC liability was under £100,000 last year, you may be eligible for the £10,500 Employment Allowance — claim it early to help recoup expenses.

c) Update Payroll Software: Make sure your accounting or payroll software (e.g. Xero, Sage, QuickBooks) is set up for the 2025 rates and allowances.

Companies might have to look at recruitment trends, flexible working, or contractor employment to control increasing staffing expenses.

d) Take Professional Guidance: A qualified accountant can assist in organizing payroll effectively — for example, weighing up salaries and dividends for directors, or making use of tax-free allowances where feasible.

5. How TaxVAT Accountancy Can Assist

At TaxVAT Accountancy, we have expertise in payroll administration, tax planning, and UK SME compliance.

Our specialists can assist you:

Work out your new NIC liabilities

Maximise Employment Allowance benefits

Simplify payroll systems for MTD readiness

Create affordable recruitment and retention strategies

Whether you're an expanding start-up or a well-established business, we'll keep you up to date, streamlined, and financially ready for these changes.

Conclusion

The National Insurance reforms in 2025 will transform payroll expenses for employers in the UK.

Though the increased Employment Allowance assists, most companies will still incur a substantial increase in NIC contributions as a result of rate increases and reduced thresholds.

It's time now to examine your payroll, budget, and tax plan with expert advice — so your company is prepared well ahead of the April 2025 cutoff.