Employers National insurance increase – What is the impact to UK businesses?

National Insurance Contributions (NICs) is the second largest source of tax revenue in the UK, and when it changes, it can have a significant impact on the government’s finances, as well as the businesses and workers that pay it.

Labour continues to state that it won’t raise taxes for ‘working people’, with their manifesto promising not to increase the rates of income tax, National Insurance or VAT. The Chancellors Autumn Budget in 2024 did not announce any increase to workers’ National Insurance rates from 6 April 2025, however employers’ National Insurance did rise with the rate increasing from 13.8% to 15%. At the same time, the threshold at which employers start paying NICs was lowered, dragging more staff into the taxable bracket.

These adjustments, are poised to affect operational costs, hiring practices, and overall business strategies across various business sectors.​

What Has Changed?

From 6 April 2025:

• the employers’ National Insurance rate went up from 13.8% to 15%
• the threshold that employers start paying National Insurance on an employee’s earnings fell from £9,100 to £5,000 a year
• the employment allowance has gone up from £5,000 to £10,500 a year – allowing organisations to claim back National Insurance up to the allowance limit
• the previous rule that employers with NICs liability of more than £100,000 per year could not claim the employment allowance has been scrapped.

These are significant changes which mean that employers will now pay higher NICs on a larger portion of each employee’s salary. For instance, a business employing someone earning £35,000 annually will see an approximate increase of £926 in NICs for that employee alone. ​

However, the bigger threat to businesses and the people they hire is the threshold at which employers’ NICs now become payable. Lowering the earnings threshold from £9,100 to £5,000 makes the tax applicable to more part-time workers, and those on lower incomes, whose earnings had previously been excluded them from their employer’s NICs bill.

Financial Implications for Businesses

The increased National Insurance Contributions are expected to have several financial repercussions to businesses:​

• Rising Operational Costs: It is inevitable that Businesses will now face higher employment costs.  This is on top of a sustained period of inflationary pressure which has driven up costs over the last few years.  This rise in Employers National Insurance has prompting some firms to implement cost-cutting measures. Tesco, for example, has announced plans to reduce costs by an additional £500 million to offset an eyewatering £235 million rise in NICs. ​

• Employment Decisions: The added financial burden may lead businesses to reconsider hiring plans, reduce their workforce or increase their use of external support. Recent data indicates a decline in UK employment by 78,000 in March 2025, the largest drop since the early pandemic period. ​

So why the change?

It’s easy to see the impact that this rise will have on both employers and employees, and it can be hard to fathom why the Government is pushing this change.  However, when you look at the UK’s current budget deficit (the difference between Government spending and tax revenue), for the financial year ending March 2025, it is provisionally estimated at 2.6% of GDP. This is equivalent to £137.3 billion, according to the Office for Budget Responsibility.

However, these changes coincide with other economic pressures:​

• Inflation Concerns: While UK inflation slowed to 2.6% in March 2025, analysts anticipate a rise due to increased employer taxes and other factors. ​
• Wage Growth: Despite employment challenges, wage growth remains strong, with average weekly earnings excluding bonuses rising by 5.9% annually. ​

Can business mitigate the impact?

Businesses can consider several approaches to manage the impact of increased NICs on their business:

• Utilize Employment Allowance: The Employment Allowance has increased from £5,000 to £10,500, and the previous cap restricting eligibility for employers with NIC liabilities over £100,000 has been removed. ​
• Implement Salary Sacrifice Schemes: Offering benefits like pension contributions through salary sacrifice can reduce NIC liabilities for both employers and employees. ​
• Review Workforce Structure: Assessing the balance between full-time, part-time, and contract workers can help optimise employment costs.​

In summary

The April 2025 changes to Employers’ National Insurance Contributions represent a significant shift in the UK’s employment cost landscape. While aimed at addressing fiscal challenges, these changes impose additional financial pressures on businesses, potentially affecting employment rates and economic growth. Proactive planning and implementing mitigating strategies will be crucial for businesses if they are to navigate this new environment effectively.​