Employer National Insurance costs have changed dramatically for 2025 – and the impacts are still catching up with businesses countrywide.
From 6 April 2025, the secondary threshold dropped from £9,100 to £5,000 per year, while the employer National Insurance rate increased from 13.8% to 15%.
For most businesses, this means paying more National Insurance on every employee. But here’s the thing—the changes also brought relief in the form of an enhanced Employment Allowance that can completely wipe out National Insurance costs for smaller employers.
The trick is understanding exactly how these changes hit your payroll and making sure you claim every penny you’re entitled to. Let’s break down what’s actually changed and how to work out the real impact on your business.
What Changed in April 2025
The government threw four major changes at employer National Insurance all at once, creating what many reckon is the biggest shake-up in employment costs for years.
The Secondary Threshold Drop
The secondary threshold reduction to £5,000 per year means you now start paying National Insurance on employee earnings much earlier. Previously, you got a free pass on the first £9,100 of each employee’s salary. Now, that cushion has shrunk to just £5,000.
This hits every single employee on your books. Whether they earn £20,000 or £200,000, you’re now paying National Insurance on an extra £4,100 of their salary compared to last year.
The Rate Increase
The employer National Insurance rate itself jumped from 13.8% to 15%—that’s 1.2 percentage points more. So you’re paying a higher percentage on all earnings above the threshold. Combined with the lower threshold, it’s a proper double whammy for employers.
Here’s what that means in practice: you used to pay 13.8% on earnings above £9,100. Now you pay 15% on earnings above £5,000. Both the rate and the starting point have moved against you.
Employment Allowance Boost
There is some good news, though. Employment Allowance now lets eligible employers reduce their annual National Insurance bill by up to £10,500—that’s double the previous £5,000 limit.
Even better, from April 2025, employers paying more than £100,000 in Class 1 National Insurance can now apply for Employment Allowance. This scraps a restriction that previously shut out larger businesses.
Working Out Your New National Insurance Bill
Calculating your employer’s National Insurance is pretty straightforward, but the impact varies hugely depending on how many people you employ and what you pay them.
The Basic Sum
For most employees (National Insurance categories A, B, C, and J), the calculation is:
(Annual Salary – £5,000) × 15% = Annual Employer National Insurance
So for someone earning £30,000:
- (£30,000 – £5,000) × 15% = £3,750
Under the old system, this would have been:
- (£30,000 – £9,100) × 13.8% = £2,884
That’s an extra £866 per employee earning £30,000—a 30% jump in your National Insurance costs for that person alone.
What This Means in Real Terms
The extra employer’s National Insurance varies depending on what you pay people:
- £20,000 salary: Extra £746 per year
- £25,000 salary: Extra £806 per year
- £35,000 salary: Extra £926 per year
- £50,000 salary: Extra £1,106 per year
If you’ve got a team of 10 people on £35,000 salaries, you’re looking at around £9,260 more annually in National Insurance alone. That’s over £9,000 extra that wasn’t in last year’s budget.
The Employment Allowance Lifeline
If you’ve never heard of Employment Allowance, here’s what you need to know: it’s a government scheme that lets eligible employers reduce their National Insurance bill by up to £10,500 each year.
Think of it as a discount on your employer National Insurance costs – HMRC basically says “we’ll cover the first £10,500 of what you owe us.”
The increase from £5,000 to £10,500 in the Employment Allowance is specifically designed to help smaller businesses cope with NI hikes, and it can completely eliminate National Insurance costs for many small businesses.
In fact, small businesses will mostly do better from the new rules. It’s larger SMBs, SMEs, and enterprises who will take the hit.
Who Can Claim It
You can claim Employment Allowance if you tick these boxes:
- You’re registered as an employer with HMRC
- You run a business or charity
- You’ve got at least one employee (other than directors) earning more than £5,000 per year
There are some specific rules for certain situations. If you’re a limited company where only directors are employees, you need at least two directors, each earning above the £5,000 threshold.
This stops one-person companies from claiming the allowance just for paying themselves a salary.
What Doesn’t Count
Some types of work are excluded from Employment Allowance:
- Domestic staff like nannies, cleaners, or gardeners (unless they’re care workers)
- Anyone working under IR35 rules
- If more than half your work involves public sector contracts (unless you’re a charity)
How Much You Can Save
The numbers can be pretty impressive. Let’s say you run a small business with three employees earning £25,000 each. Your National Insurance bill for 2025/26 would be:
- Three employees: (£25,000 – £5,000) × 15% × 3 = £9,000
- Less Employment Allowance: £9,000 – £10,500 = £0
You’d pay absolutely nothing in employer National Insurance because the allowance covers your entire liability.
Even bigger businesses get relief. A company with a £15,000 annual National Insurance bill would only pay £4,500 after claiming the full £10,500 allowance.
How to Claim Employment Allowance
Employment Allowance doesn’t apply automatically. You must claim it through your payroll software or HMRC’s Basic PAYE Tools.
You can claim Employment Allowance at any point during the tax year as part of your regular payroll submissions to HMRC. Once you’ve submitted your claim, you can start using your allowance straight away.
The process is actually quite simple:
- Using your own payroll software: Enter “Yes” in the ‘Employment Allowance indicator’ field when you next send an Employment Payment Summary (EPS) to HMRC
- Using HMRC’s Basic PAYE Tools: Select ‘Change employer details’ from the ‘Employer’ menu, then select ‘Yes’ in the ‘Employment Allowance indicator’ field
Once you’ve submitted your claim, your payroll will automatically reduce your National Insurance payments until you’ve used up the £10,500 or the tax year ends.
Too many businesses forget to claim the Employment Allowance. Even better, you can backdate claims for up to four years if you were eligible but didn’t claim.
That could mean getting back up to £20,000 in previous Employment Allowance you missed out on!
The End of the £100,000 Cap
Previously, if your National Insurance bill was more than £100,000 in the previous year, you couldn’t claim Employment Allowance at all. That restriction vanished in April 2025, opening up the allowance to thousands more businesses.
So if your company paid £120,000 in National Insurance last year, removing this cap means you can now claim £10,500 back, a welcome relief when you’re facing higher rates and lower thresholds.
Managing NI’s Cash Flow Impact
How these changes affect your cash flow depends on when you pay your staff. Monthly payroll spreads the impact throughout the year, while businesses paying quarterly or annually face bigger lump-sum increases.
Monthly Impact
For monthly payroll, the secondary threshold works out to roughly £417 per month per employee. Any earnings above this get hit with the 15% employer National Insurance rate.
What’s Coming Next
The Secondary Threshold of £5,000 a year will remain from 6 April 2025 until 5 April 2028. That gives you three years of certainty for planning, though after that it could rise with inflation.
Since we’re already in July 2025, you’ve probably felt the impact of these changes in your monthly payroll runs. The focus now is on working out how to keep costs down and making sure you’re claiming every allowance you can get.
Will You Pay More or Less? An Employment Allowance Reality Check
The big question everyone’s asking is simple – will these National Insurance changes actually cost me more money?
The answer depends entirely on your business size and whether you’re claiming Employment Allowance.
For many smaller businesses, the enhanced Employment Allowance doesn’t just soften the blow – it can leave you better off than before.
But there’s a tipping point where the increased rates and lower threshold start to bite hard. Here’s exactly where you stand:
| Business Size | 2024/25 NI Bill | 2025/26 NI Bill (Before Allowance) | Employment Allowance | 2025/26 Final Bill | Net Change |
|---|---|---|---|---|---|
| 2 employees @ £20,000 | £0 | £4,500 | £10,500 | £0 | No change |
| 3 employees @ £25,000 | £1,583 | £9,000 | £10,500 | £0 | Save £1,583 |
| 5 employees @ £30,000 | £9,421 | £18,750 | £10,500 | £8,250 | Save £1,171 |
| 8 employees @ £35,000 | £23,594 | £36,000 | £10,500 | £25,500 | Pay £1,906 more |
| 15 employees @ £40,000 | £58,963 | £78,750 | £10,500 | £68,250 | Pay £9,287 more |
| 25 employees @ £45,000 | £118,855 | £150,000 | £10,500 | £139,500 | Pay £20,645 more |
| 40 employees @ £50,000 | £220,768 | £270,000 | £10,500 | £259,500 | Pay £38,732 more |
The pattern is clear – if your annual National Insurance bill stays under around £20,000, you’re likely to save money or break even.
Go much beyond that, and you’ll feel the full weight of the changes. The key is knowing which side of the line you’re on and planning accordingly.
Important considerations for these calculations:
These examples assume all employees are in standard National Insurance category A, earn the stated salary consistently throughout the year, and that your business is eligible for and successfully claims the full Employment Allowance. Your actual costs may vary depending on several factors.
Different National Insurance categories can dramatically change your position:
- Category H (Apprentices under 25): You pay 0% employer National Insurance on earnings up to £50,270 per year. An apprentice earning £30,000 costs you absolutely nothing in National Insurance – a massive advantage.
- Category M (Employees under 21): Same as apprentices – 0% employer National Insurance up to £50,270 annually. If half your workforce is under 21, your National Insurance bill could be cut in half.
- Category V (Qualifying veterans): Veterans in their first year of civilian employment also benefit from 0% employer National Insurance up to £50,270.
- Categories F, I, L, S (Freeport employees): Reduced thresholds apply, with 0% National Insurance up to £25,000 per year.
- Categories N, E, D, K (Investment Zone employees): Similar benefits to Freeport employees.
Other factors that affect your actual costs:
- Varying salaries: These examples use consistent salaries, but if you have a mix of higher and lower earners, your overall position may be better or worse.
- Employment Allowance eligibility: Not all businesses qualify. You can’t claim if you’re a single-director company where the director is the only employee earning above £5,000, or if more than 50% of your work is public sector contracts.
- Seasonal businesses: If you only employ people for part of the year, your National Insurance liability will be proportionally lower.
- Benefits in kind: Company cars, health insurance, and other benefits trigger additional Class 1A National Insurance at 15%.
The bottom line is that if you employ young people, apprentices, or veterans, or if you’re a smaller business that can claim Employment Allowance, these changes might actually save you money.
Larger businesses with standard employees will face increased costs, but even then, the £10,500 Employment Allowance provides some cushion.
Getting the Help You Need
The £5,000 threshold change has completely rewritten the rules on employment costs, but here’s the silver lining: Employment Allowance often does more than compensate. Many small businesses actually pay less National Insurance overall despite the rate increases.
Even so, NI accounts for one of the greatest employment costs and tax overheads facing businesses, so consider professional help if:
- Are unsure about Employment Allowance eligibility, or are considering changes to your employment structure
- You’ve multiple employees across different National Insurance categories
- Or want to explore salary sacrifice schemes.
The key thing to remember: Employment Allowance doesn’t happen automatically; you’ve got to claim it.
At Double Point, our chartered accountants work out your exact costs, make sure you claim everything you’re entitled to, and help you develop smart strategies for managing employment expenses.
Book a consultation today to make the most of your National Insurance savings and get your payroll costs under control.