Employers’ National Insurance Contributions (NICs) is set to change significantly in April 2025. These changes will impact businesses of all sizes, making it crucial to understand the implications and explore ways to mitigate potential cost increases.

Here’s what you need to know.

What’s changing with employers’ national insurance?

Currently, employers pay NICs at a rate of 13.8% on a worker’s earnings above £175 per week. However, from April 2025, this rate will increase to 15%, and the threshold at which employers start paying NICs will drop from £9,100 per year to £5,000.

For many businesses, this means a higher tax burden, potentially increasing employment costs across the board.

But there’s good news. Some businesses may be protected from these changes thanks to updates to the Employment Allowance scheme.

A Lifeline for Small Businesses

Smaller businesses might not feel the full brunt of these changes due to the government’s decision to more than double Employment Allowance from £5,000 to £10,500 as of 6 April 2025.

Key Takeaways:

• Eligible employers can now reduce their NIC bill by £10,500 annually.
• The £100,000 threshold for eligibility is being removed, meaning more businesses can benefit.
• Businesses with Employer NIC obligations should check if they qualify for this allowance to help offset costs.

How to Reduce National Insurance Bills

One way businesses can reduce their NIC liabilities is through a salary sacrifice scheme. This involves employees agreeing to give up a portion of their pre-tax salary in exchange for non-cash benefits, such as:

• Pension contributions
• Childcare vouchers
• Electric vehicle leases

How it works:

• Since Employer NICs are calculated based on an employee’s gross salary, reducing this amount lowers the employer’s NIC liability.
• Employees also benefit by lowering their income tax, NICs, and even student loan repayments.

While salary sacrifice schemes can be beneficial, there are a few critical considerations before implementing one.

Key Considerations Before Implementing Salary Sacrifice

1. Don’t let salaries fall below the national minimum wage

Employers must ensure that post-sacrifice salaries do not fall below the National Minimum or National Living Wage. HMRC rules prevent employees from reducing their cash earnings below the legal minimum, regardless of the benefits they receive in return.

2. Maternity and paternity pay may be affected

Salary sacrifice can lower an employee’s average earnings, which could impact their entitlement to statutory maternity or paternity pay. If an employee’s adjusted salary falls below the Lower Earnings Limit for NICs (£125 per week in 2025/26), they may lose their entitlement altogether.

3. It can impact student loan repayments

Since student loan repayments are based on gross taxable salary, participating employees may see a reduction in their monthly repayments. While this increases take-home pay in the short term, it could result in longer repayment periods and higher interest over time—something employees should carefully consider.

 

How can MMG Chartered Accountants help?

With these changes fast approaching, it’s essential to review your payroll strategy to manage costs effectively. Whether you need help understanding the new NIC rates, assessing eligibility for Employment Allowance, or implementing salary sacrifice, our payroll specialists are here to support you.

Get in touch today at payroll@mmgca.co.uk and let’s ensure your business is ready for these upcoming changes.