Get Ready for the National Insurance Changes Happening in April 2025
In the Autumn Budget last year the Chancellor announced significant National Insurance changes for employers, coming into effect 6 April 2025.
The change is predicted to impact 1.2 million employees, with a net cost estimated to be £24 billion for the 2025/26 tax year.
The key National Insurance changes:
- Class 1 contributions paid by employers will increase from 13.8% to 15%, as will Class 1A and Class 1B which are paid by employers on Benefits in Kind.
- The level at which NIC is paid by employers become liable to pay NICs will reduce from £9,100 to £5,000.
- The employment allowance will increase from £5,000 to £10,500 and become claimable by all employers, except single director/ employee companies. This may offset some of the additional payroll costs.
Some employers will see a decrease in their Class 1 NICs liability but most will see an increase or no change.
In addition, the National Minimum Wage is increasing to £12.21 for 21+ year olds, and for those under 21, it’ll increase from £8.60 to £10.00. This will also impact how much employers are contributing as well as the percentage increase.
What does this mean for employers and employees?
Employers will need to consider the impact of the National Insurance changes and the costs they have on the business. The increase to 15% means employers’ payroll costs will increase by a minimum of £615 for every employee. For an employee on the UK average salary of £37,430, this will be an additional £1,000 to be paid. Employers may take these increased NI costs into consideration when it comes to reviewing employee salaries and bonuses.
Employers also need to consider the benefits they offer, and schemes such as employee salary sacrifice may be a more attractive option for employers.
For directors who have received a salary at a level to receive a National Insurance credit without paying National Insurance, a review of their remuneration policies should be undertaken.
Despite speculation, National Insurance was not applied to employer-paid pension contributions, potentially creating further planning opportunities.
Next steps
Focused remuneration planning is a key pillar to achieve your business’s financial goals, maintaining healthy cash flow, and, importantly, staying compliant.
At TC Group we can review your current remuneration strategy, including salaries, dividends, Benefits in Kind, and pensions, to optimise for tax efficiency and growth.
To find out more, get in touch for a free, no-obligation consultation with our expert tax team.