Employer National Insurance from April 2025: What the Rate, Threshold and Employment Allowance Changes Mean for Owner-Managed Companies
From 6 April 2025 the employer secondary Class 1 National Insurance rate rose to 15% and the point at which it begins fell to £5,000, while the Employment Allowance rose to £10,500 with its old £100,000 eligibility cap removed. For owner-managed companies the combined effect is a materially higher cost of employing people, and a well-known trap means a company whose only employee is a single director cannot claim the allowance at all.
What actually changed on 6 April 2025
Three separate changes to employer National Insurance took effect on 6 April 2025 and remain in force for the 2025/26 and 2026/27 tax years. First, the rate of secondary Class 1 National Insurance contributions, which is the employer's own charge on the wages it pays, rose from 13.8 per cent to 15 per cent. Second, the secondary threshold, the level of annual earnings above which that charge begins, was cut sharply from £9,100 to £5,000 a year, and is fixed at £5,000 until 5 April 2028. Third, the Employment Allowance, which lets many employers offset a fixed sum against their secondary NIC bill, was increased from £5,000 to £10,500 and the previous £100,000 eligibility cap was abolished. Two of these changes push the cost of employing people up and one softens the blow for those who qualify, so the net effect on any given company depends on its headcount, its payroll and, crucially, whether it can claim the allowance at all. Because these are secondary Class 1 changes, they fall on the employer and do not alter the employee's own National Insurance or income tax position.
The secondary rate: 13.8 per cent to 15 per cent
The headline is the increase in the secondary Class 1 rate from 13.8 per cent to 15 per cent. This is the percentage a company pays on the slice of each employee's earnings above the secondary threshold, and it is a cost to the business rather than a deduction from the worker's pay. A 1.2 percentage point rise sounds modest in isolation, but it applies to the whole of the earnings above the threshold for every employee on the payroll, so it compounds quickly across a workforce. For an owner-managed company the rate rise matters most where salaries are substantial, because the extra 1.2 per cent bites on the full excess over the threshold. The charge is deductible for corporation tax, so the true net cost is lower than the headline once the corporation tax saving is taken into account, but the cash outflow through the payroll is real and immediate and lands in the month the wages are paid.
The secondary threshold: £9,100 to £5,000
Less widely discussed than the rate, but arguably more significant for smaller employers, is the collapse of the secondary threshold from £9,100 to £5,000 a year. This is the point at which the employer charge switches on, and lowering it by £4,100 means the 15 per cent rate now applies to a wider band of every employee's earnings. In practical terms the change does two things at once: it raises the rate and lowers the starting point, so the base to which the higher rate applies is itself larger. An employee earning modest wages who previously sat near or below the £9,100 line, generating little or no employer charge, will now attract secondary NIC on everything above £5,000. For companies with part-time staff, seasonal workers or a director on a low salary, the reduced threshold is often the change that produces the biggest proportionate jump in cost, because it pulls earnings that were previously outside the charge inside it.
The combined effect: an illustrative worked example
The following is an illustrative example only and is not a calculation for any real employer; every business should check its own figures. Consider an employee on a salary of £30,000 a year at a company that cannot use the Employment Allowance. Under the 2024/25 rules the employer charge was 13.8 per cent on earnings above £9,100, giving £30,000 minus £9,100, which is £20,900, taxed at 13.8 per cent, or £2,884.20 of employer National Insurance for the year. Under the 2025/26 rules the charge is 15 per cent on earnings above £5,000, giving £30,000 minus £5,000, which is £25,000, taxed at 15 per cent, or £3,750 for the year. The extra employer cost on this single £30,000 salary is therefore £865.80 a year, a rise of roughly 30 per cent on the previous figure, before any corporation tax relief on the additional deduction. Multiply that pattern across a small team and the aggregate increase becomes a meaningful line in the budget rather than a rounding difference.
Employment Allowance: £5,000 to £10,500 and the end of the cap
Against those increases the Employment Allowance was more than doubled, rising from £5,000 to £10,500 a year. The allowance is a fixed sum that an eligible employer can set against its secondary Class 1 liability, effectively wiping out the first £10,500 of employer National Insurance for the year. Alongside the increase, the government removed the rule that had restricted the allowance to employers whose secondary NIC liability was below £100,000 in the previous tax year, so from 6 April 2025 the size of an employer's National Insurance bill no longer affects whether it can claim. The larger allowance is deliberately calibrated to shield genuinely small employers from the rate and threshold changes, and for many businesses with a handful of staff it will cancel out the additional cost entirely. It is not automatic: the allowance must be claimed each tax year through the payroll software or the Employer Payment Summary, and eligibility must be considered afresh each year rather than assumed to carry over.
The single-director trap that catches owner-managed companies
The critical qualification for owner-managed companies is that a limited company cannot claim the Employment Allowance if its only employee liable to secondary Class 1 National Insurance is a single director. This is a long-standing restriction that survived the April 2025 changes untouched, and it is the point most likely to catch a one-person company by surprise. A company run by a sole director-shareholder with no other staff on the payroll simply cannot use the allowance, so the higher rate and lower threshold hit that company's director salary in full with no offset available. The position changes if the company takes on at least one other employee who is paid above the secondary threshold and is not also a director, because the company then has more than one person generating a secondary liability and eligibility can be restored. Owner-managers should not assume the doubled allowance protects them; for a genuine single-director company it provides no shelter at all, and the extra cost of the rate and threshold changes falls on the director's own salary without relief.
The knock-on for salary versus dividend and the optimal director salary
These changes feed directly into the perennial owner-manager question of how to extract profit, and specifically the level at which to set a director's salary. Where the company cannot claim the Employment Allowance, the point at which a director's salary starts to generate an employer National Insurance charge has fallen from £9,100 to £5,000, so a salary set at the old £9,100 level now carries 15 per cent secondary NIC on the £4,100 above the new threshold. That does not automatically make a low salary the right answer, because employer National Insurance is deductible for corporation tax and paying a salary up to the personal allowance of £12,570 can still be efficient once the corporation tax relief on both the salary and the employer NIC is weighed against the National Insurance cost and the value of building qualifying years for the state pension. Where the allowance is available, because there is a second employee, a salary up to £12,570 can often be paid with the employer charge fully absorbed by the allowance. The dividend side of the comparison is unchanged by these rules, but the cost of the salary leg has moved, so the arithmetic that many owner-managers settled in prior years should be recalculated for 2025/26 rather than rolled forward, and the answer genuinely differs depending on whether the company is a single-director company or has other staff.
Common questions
Does the higher employer National Insurance rate reduce my employees' take-home pay? No. The secondary Class 1 rate of 15 per cent is a charge on the employer, not a deduction from the employee, so it does not by itself change what staff receive; employees' own National Insurance and income tax are governed by separate rules that these changes did not alter. Can a company with just one director ever claim the Employment Allowance? Not while the director is the only person on the payroll with a secondary Class 1 liability; the company must have at least one other employee, who is not also a director, paid above the £5,000 secondary threshold before it can claim. Are these figures still current for 2026/27? Yes. The 15 per cent rate, the £5,000 secondary threshold, which is set until 5 April 2028, and the £10,500 Employment Allowance all continue to apply for the 2026/27 tax year, so planning done for 2025/26 remains valid, though eligibility for the allowance should still be reviewed each year.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.