Employers NICs increases on the way
For paydays on and after 6 April 2025:
- the rate of secondary National Insurance Contributions (NICs) paid by employers on an employee’s earnings above the ‘secondary threshold’ will increase from 13.8% to 15%; and
- the secondary threshold will reduce from £9,100 to £5,000 per annum.
The reduction in the secondary threshold means employers will have an obligation to send the full payment submission (FPS) for employees earning above this threshold (£96 per week/£417 per month). Previously the obligation applied where earnings were above the Lower Earnings Limit (LEL), which is the point at which an employee accrues a right to certain state benefits. The LEL is £125 per week/£542 per month for 2025/26.
These changes represent a big extra cost for businesses and, because of the big reduction in the starting threshold, the increase is proportionately greater on lower salaries. For example, the employers’ NICs payable on an annual salary of £12,570 (the level of the tax-free personal allowance) increases next year from £479 to £1,136 (i.e. a 137% increase); on a salary of £30,000 p.a., the increase is from £2,884 to £3,750 (i.e. 30% more). Many employers will also have to cope with the increases in the National Living Wage (NLW) and National Minimum Wage that take effect in April, increases that will themselves increase employers’ NICs charges.
There are some ways to mitigate the increased employers’ NICs, so make sure you make use of any of the following that could apply to your business.
The Employment Allowance
For 2025/26 onwards, the annual value of the Employment Allowance (EA), which gives exemption from employers’ Class 1 NICs, is increased from £5,000 to £10,500 per business. This means that a business employing four people full-time on the NLW will not incur employers’ Class 1 NICs on their salaries.
The government is also abolishing the rule that you can only claim EA if your total employers’ Class 1 NICs liability is below £100,000 in the tax year before the year of claim. As a result, many businesses will now qualify for EA that didn’t previously.
Note that the other restrictions on claiming EA (e.g. for single-director companies and domestic employees (such as a nanny) remain unchanged.
It is possible to backdate employment allowance claims for the previous four tax years so, when thinking about eligibility for 2025/26, also consider if the employment allowance could have been claimed for an earlier year.
Employing veterans
There is exemption from employers’ Class 1 NICs when employing an armed forces veteran in their first twelve months of employment after leaving the armed services. This exemption applies up to a salary of £967 per week (£4,189 per month or £50,570 p.a.).
The same exemption and thresholds apply when employing those aged under 21 and certain apprentices aged under 25.
Employees in Freeports and Investment Zones
The last government introduced numerous Freeports and Investment Zones, within which businesses get various tax breaks. One of these is exemption from employers’ Class 1 NICs for ‘new’ employees. This exemption is on earnings of up to £481 per week (£2,083 per month or £25,000 p.a.) and applies for a maximum of 36 months from the date first employed.
For an employer to be eligible:
- the employee must be newly employed; and
- they must spend at least 60% of that employment in a single Freeport or Investment Zone; and
- the employer must have business premises in that tax site.
Contrary to many expectations, the Labour Government is keeping Freeports and Investment Zones, at least for the time being. If your business is based in one, make sure you take advantage of this employers’ NICs break.
Please contact us if you need any help in planning for the increased employer NICs costs that are coming in April, particularly if you think your business is eligible for one of the reliefs above.
