Employer National Insurance increase: what next?

In Labour’s first Budget in October 2024, Chancellor Rachel Reeves announced an increase in the Employer National Insurance rate.

The move was controversial. Some people argued that it was a breach of Labour’s manifesto commitments. Others pointed to the adverse impact the change would have on GP surgeries, care homes and hospices.

Despite these objections, the rate of Employer National Insurance will go up from April 2025. In this post, we examine the changes and what they mean for you.

What are the Employer National Insurance changes?

Currently, the Employer National Insurance rate is 13.8% of an employee’s earnings. It is applied above a threshold of £9,100 per year.

From April 2025 this will change. From then, the Employer National Insurance rate will go up to 15%. In addition, it will be applied to earnings above £5,000 per year.

It is estimated that the increased rate will result in additional revenue of some £25 billion per year. However, the Office for Budget Responsibility has said that one side effect will be to lower employee wages and employment.

In some cases, the point at which employers pay secondary National Insurance contributions (NICs) is replaced by an upper secondary threshold (UST). This is £25,000 annually for freeports and investment zones, and £50,270 for under 21s and apprentices under 25. The UST for veterans is also £50,270, which will run until 2026. All of these USTs will remain unchanged in April 2025.

Employment Allowance

The Budget also made changes to the Employment Allowance. This allows certain businesses and charities to reduce their Class 1 NI liability by up to £5,000 per employee. It also applies to people who employ a care or support worker.

Currently, businesses can only claim the Employment Allowance if their National Insurance liabilities were less than £100,000 in the previous tax year. It’s possible to claim the allowance for the four previous tax years.

The Autumn 2024 Budget increased the Employment Allowance to £10,500 per year from April 2025. The £100,000 threshold will also be abolished. This means that some employers may be able to significantly reduce their NI liability.

You can learn more about the Employment Allowance here.

Benefits in kind

It’s also worth noting that employers pay class 1A NIC on some benefits and lump sums paid to employees. They also have to pay class 1B NIC if they have a pay-as-you-earn settlement agreement with HMRC. In both instances, the rate will increase from 13.8% to 15% in April 2025.

Salary sacrifice

Given that many businesses face higher Employer National Insurance bills, it may be worth taking a fresh look at salary exchange (or salary sacrifice) options. By giving workers the option of salary sacrifice, employers can pay money into employees’ pensions and not have to pay 15% NICs on it. This is helped by the fact that the annual tax-free allowance for pensions remains at 100% of salary, up to a maximum of £60,000. Tax relief for employees also remains at their marginal rate, and there’s still NI relief for both employer and employee contributions made using salary exchange.

What next?

As you’ve seen, many employers will be facing higher Employer National Insurance bills from April 2025. That said, they may be able to reduce their liabilities via the Employment Allowance and/or via salary sacrifice schemes. If you are a THP client and would like some advice on Employer National Insurance, be sure to get in touch with your account manager today.