Going Up: Employers NIC from April 2025

Employers fared badly in Autumn Budget 2024 as the Chancellor looked to them to provide £25bn of the additional £40bn that she needed to raise. The revenue target will be achieved by raising the rate of employers’ National Insurance contributions (NICs) and reducing the secondary threshold so that employers will be required to make contributions at a higher rate on more of their employees’ earnings. 

However, the axe will not fall evenly, as the employment allowance is also increased from £5,000 to £10,500, which will mean some of the smallest employers will not pay any more in employers’ contributions than they do currently, and may even pay less. However, despite increased access to the employment allowance, the cost to larger employers will be significant. The changes take effect from 6 April 2025. 

Employers providing taxable benefits-in-kind or using a PAYE settlement agreement will face further increases. The rate of Class 1A and Class 1B NICs are aligned with the secondary Class 1 NICs rate and these, too, are increased to 15% from 6 April 2025. 

There are no changes to the contributions paid by employees which will remain at their current level for 2025/26. 

Nature of employer contributions 

Employers pay secondary Class 1 NICs on their employees’ earnings. 

The liability arises on all earnings over the relevant secondary threshold. Unlike primary contributions, there is a single secondary rate, and contributions are payable at this rate on all earnings above the threshold. 

The secondary threshold is set at £9,100 a year (£175 per week, £758 per month). From 6 April 2025, it will fall to £5,000 (£96 per week, £416 per month). 

To encourage employers to take on certain categories of workers, higher secondary thresholds apply to workers under the age of 21, apprentices under the age of 25, armed forces veterans in the first year of their first civilian employment since leaving the armed forces and new employees working in special tax sites. Where an upper secondary threshold applies, the employer only pays secondary contributions if earnings exceed that threshold, and only on earnings in excess of that threshold. 

The upper secondary threshold for under 21s, the apprentice upper secondary threshold and the veterans upper secondary threshold are set at £50,270 (£967 per week; £4,189 per month) for 2024/25. They remain at this level for 2025/26. The special tax site upper secondary threshold, which applies in respect of the earnings of a new employee for the first 36 months of their employment in a freeport or investment zone is set at £25,000 (£481 per week, £2,083 per month) for 2024/25. It, too, remains at this level for 2025/26. 

Employment allowance 

Eligible employers are able to claim an employment allowance, which they offset against their secondary Class 1 NICs liability until it is used up. This reduces the amount that they need to pay over to HMRC. If an employer’s liability for the year is less than the employment allowance, they do not pay any employers’ NICs. However, the allowance is capped at their liability for the year. 

For 2024/25, the allowance is set at £5,000. It is increased to £10,500 for 2025/26. 

Not all employers benefit from the employment allowance. For 2024/25, it is only available to employers whose Class 1 NICs liability in 2023/24 was £100,000 or less. This restriction is lifted from 6 April 2026, meaning larger employers will be able to benefit from the allowance, mitigating some of the impact of the rise in employer contributions. 

However, the employment allowance is not available to personal companies where the sole employee is also a director, and this remains the same for 2025/26. However, family companies with at least two employees are able to claim the allowance. 

Case study 1: Employment allowance to the rescue 

A Ltd is a small employer with three employees. One employee is paid £10,000 a year, one is paid £20,000 a year and the third is paid £50,000 a year. 

The employers’ NICs liability will rise by £2,477.40 in 2025/26. However, as their total liability at £9,750 (£750 + £2,250 + £6,750) is less than the employment allowance of £10,500, they will pay no employers’ NICs in 2025/26. 

In 2024/25, their liability of £7,272.60 was more than the employment allowance of £5,000, meaning they must pay £2,272.60 to HMRC. Despite the increase in the rate and the reduction in the secondary threshold, A Ltd’s employer NICs bill will fall. 

Case study 2: Overall reduction in employers’ NIC liability 

B Ltd has six employees, all paid £30,000 a year. In 2024/25, they must pay £12,305.20 over to HMRC after deducting the employment allowance. Their total liability is £17,305.20 and the employment allowance is £5,000. 

In 2025/26, their total liability is £22,500 and the employment allowance is £10,500, meaning they will pay £12,000 over to HMRC. The increase in the employment allowance offsets the increase to the secondary rate and the reduction is the threshold, so that they are slightly better off in 2025/26 than in 2024/25. 

Case study 3: Overall increase in employers’ NICs 

C Ltd has 120 employees, of which 100 are paid £20,000 a year and 20 are paid £40,000 a year. In 2024/25, their employers’ Class 1 NICs liability was £235,704. They were not entitled to the employment allowance. 

In 2025/26, their employers’ Class 1 NICs liability increases to £330,000. However, they will be entitled to the employment allowance of £10,500, reducing what they pay to HMRC to £319,500. This is £83,796 more than for 2024/25. 

Case study 4: Personal service company 

David provides his services through his personal company, D Ltd. The company pays a salary of £12,570 (equal to David’s personal allowance) and he extracts further profits in dividends. 

The changes to employers’ NICs will mean that the secondary Class 1 NICs liability on David’s salary will increase from £478.86 in 2024/25 to £1,135.50 for 2025/26. D Ltd is not entitled to the employment allowance as David is the sole employee and is also a director. 

However, despite the increase, it is still worthwhile paying a salary at this level. The salary and employers’ NICs are deductible in computing the profits liable to corporation tax and will attract relief of at least 19%. This is more than the 2025/26 secondary Class 1 NICs rate of 15%. 

Mitigation 

Employers who are adversely affected by the changes may wish to look at their employee mix and consider recruiting, say, employees under the age of 21 or armed forces veterans who have recently left the armed forces to take advantage of the upper secondary thresholds, as this will raise the starting point for contributions from £5,000 to £50,270 for 2025/26, allowing the employer to save up to £6,790.50 per employer. 

Employers could also consider taking one or two part-time employees instead of one full-time employee to access an additional secondary threshold. 

Benefits-in-kind 

Employers must pay Class 1A NICs on most taxable benefits-in-kind provided to employees. As the Class 1 NICs rate increases to 15% from 6 April 2026, this makes the provision of taxable benefits more expensive, and exempt benefits more valuable. Employers wishing to provide non-cash benefits could pick exempt benefits rather than taxable benefits to save on the associated Class 1A NICs. The rise in Class 1B NICs to 15% will make it more expensive for an employer to meet a liability on behalf of the employees by including a benefit within a PAYE settlement agreement (PSA). Employers are advised to review existing PSAs to check whether they remain affordable. 

Practical tip 

Employers should assess how the increase in employers’ NICs will affect them, and whether their bill will increase, and consider whether they can take action to reduce it.