Starting from April 6, 2025, all UK employers, including those operating in London
, will face significant changes to their National Insurance Contributions (NICs). The employer NIC rate will increase from 13.8% to 15%, while the secondary threshold—the point at which employers begin to pay NICs on an employee’s earnings—will be lowered from £9,100 to £5,000 per year. At the same time, the Employment Allowance, which helps reduce NIC bills for smaller employers, will nearly double from £5,000 to £10,500, and eligibility barriers will be removed for many businesses. Understanding these changes is crucial to managing your payroll costs efficiently and avoiding unexpected hits to your bottom line.
What Exactly Has Changed?
- Employer NIC Rate Increase:
The employer’s National Insurance rate on employee earnings above the secondary threshold rises from 13.8% to 15%, marking a 1.2 percentage point increase. This means for every £100 paid over the threshold, your business pays £15 in NICs instead of £13.80. - Lower Secondary Threshold:
Employers traditionally only paid NICs on annual earnings exceeding £9,100 per employee. From April 2025, this threshold drops sharply to £5,000 per year. Employers must now pay NICs on wages earned above this lower level, increasing the employer NIC base. - Employment Allowance Increase and Expansion:
To offset the increased costs, the Employment Allowance increases from £5,000 to £10,500 annually, and the previous £100,000 NIC liability cap for eligibility is removed. This expansion enables many more smaller and medium-sized London businesses to claim the allowance, effectively reducing their NIC liability by up to £10,500 annually.
How These Changes Affect Payroll Costs: Worked Examples
To understand the real-world impact on London businesses, here are example calculations for different employee salary scenarios.
Example 1: Single Employee on Median UK Salary (~£36,000/year)
- Before April 2025:
- NIC payable on earnings above £9,100: £36,000 – £9,100 = £26,900
- Employer NIC at 13.8%: £26,900 * 13.8% = £3,712.20
- After April 2025:
- NIC payable on earnings above £5,000: £36,000 – £5,000 = £31,000
- Employer NIC at 15%: £31,000 * 15% = £4,650
- Difference in employer NIC cost: £4,650 – £3,712.20 = £937.80 additional annual cost
If this business claims the full £10,500 Employment Allowance, the allowance more than offsets the increase in NIC for this employee, leaving a net benefit for the employer. However, businesses with multiple employees or higher wages may exhaust the allowance quickly.
Example 2: Small Business with 5 Employees Earning £20,000 Each
- Total additional NIC cost per employee (following Example 1’s method) roughly £400/year
- For 5 employees: 5 * £400 = £2,000 additional annually
- Employment Allowance of £10,500 covers this fully, reducing overall employer NIC cost compared to previously
- Beyond 6-7 employees, the allowance will be used up, and the business will face net increased payroll costs.
Example 3: Larger Business with 20 Employees on Various Salaries
- Employer NIC increases affect each employee earning over £5,000
- Total incremental NIC costs can reach many thousands of pounds annually
- Employment Allowance helps but offers limited relief for larger payrolls
What You Need to Know About the Employment Allowance
The Employment Allowance is a government relief that reduces NIC bills for eligible businesses. Key points include:
- New annual allowance of up to £10,500 (from £5,000) applied against your employer National Insurance bill
- No longer restricted to employers with NIC liabilities under £100,000 (previous cap has been removed)
- Available for most employers, except public authorities, large charities, and those who employ domestic workers
- Allows many London small businesses to absorb the NIC rate increase fully or partially
- Can be claimed via your payroll software or accountant; unused portions do not carry over but claiming is straightforward with MTA Accountants’ support
Strategies to Manage Increased Employer NIC Costs
- Review Payroll Budgets and Forecasts:
Plan for the NIC rate increase and lower threshold in your 2025/26 budgets. Early cash flow modelling will help prevent surprises. - Maximise Employment Allowance Claims:
Work with MTA Accountants to ensure you claim the full Employment Allowance correctly and promptly. - Explore Salary Packaging and Benefits:
Consider structuring remuneration packages with benefits (e.g., pension contributions, salary sacrifice schemes) that can reduce NIC liabilities legally. - Automate Payroll Processing:
Cloud payroll platforms like Xero or Sage integrate Employment Allowance and updated NIC thresholds, ensuring compliance and providing real-time reporting. - Consider Workforce Composition:
For London industries relying heavily on part-time or low-paid workers (hospitality, retail, care homes), the lower secondary threshold means NICs now apply to many more staff hours. Review contracts and pay structures carefully.
Why MTA Accountants Is Your Payroll Partner in London
Navigating these NIC changes and maximising reliefs requires expertise and careful administration. MTA Accountants offers:
- Comprehensive payroll services tailored to London businesses of all sizes
- Timely updates and advice on NIC and Employment Allowance changes
- Support for automated payroll software setup, including Xero and QuickBooks
- Accurate wage calculations and on-time HMRC submissions ensuring compliance
- Strategic tax advice to optimise remuneration packages and reduce payroll costs
With MTA Accountants handling your payroll, you can focus on growth while staying confident your employer NIC obligations are met accurately, efficiently, and cost-effectively.
Final Thoughts
The April 2025 employer National Insurance changes represent a significant increase in costs for many London businesses. While the expanded Employment Allowance will offset much of the burden for smaller employers, prudent planning and professional advice are essential.
MTA Accountants is ready to help your business adjust smoothly, minimise the financial impact, and remain fully compliant. Get in touch today to review your payroll setup and prepare for these key changes ahead of time.
Contact MTA Accountants to schedule your personalised payroll consultation and make the most of NIC allowances in 2025 and beyond.