National Insurance changes 2025: what your small business needs to know

Published Monday 29 June 2026

National Insurance changes 2025: what your small business needs to know

How the 2025 employer NIC changes affect your costs, and what to do about them.

Table of contents

• What are the 3 National Insurance changes in 2025?
• What these changes mean for your small business
• How much more will you pay per employee?
• How to reduce employer National Insurance costs
• How your business can prepare for National Insurance changes
• Getting your payroll ready for the changes
• What's changing for National Insurance in 2026–27?
• Stay on top of National Insurance changes with Xero
• FAQs on National Insurance

Key takeaways

• From April 2025, employer National Insurance rose to 15%. The payment threshold dropped to £5,000, increasing costs for every employee earning above that level.
• The Employment Allowance doubled to £10,500. The eligibility cap has been removed, so more small businesses can offset their higher bill.
• Salary sacrifice schemes, Employment Allowance claims, and Small Employers' Relief offer practical ways to reduce your overall employer National Insurance costs.
• National Insurance thresholds are frozen through 2030–31. Mandatory payrolling of benefits in kind has been delayed to April 2027.

What are the 3 National Insurance changes in 2025?

Three National Insurance changes took effect in April 2025. Together, they raise employment costs but also expand relief for eligible businesses.

• Employer rate increased from 13.8% to 15%
• Payment threshold lowered from £9,100 to £5,000 per year
• Employment Allowance raised from £5,000 to £10,500

1. A higher employer NIC rate

The employer National Insurance contributions (NICs) rate rose by 1.2 percentage points. The new rate is 15%, up from 13.8%.

• Old rate: 13.8%
• New rate from April 2025: 15%
• What this means for employers: You now pay 15p in National Insurance for every £1 an employee earns above the secondary threshold.

2. A lower secondary threshold

The secondary threshold for paying NICs dropped to £5,000. This level is set to remain in effect until at least April 2028. The broader NI threshold freeze now extends through 2030–31.

• Old threshold: £9,100 per year
• New threshold from April 2025: £5,000 per year
• What this means for employers: You pay NICs on every pound in wages above £5,000 per year instead of £9,100. This raises costs per staff member.

You can check the latest rates and thresholds on GOV.UK.

3. A higher Employment Allowance

The Employment Allowance rose from £5,000 to £10,500 per year. The £100,000 eligibility cap has also been removed.

• Old allowance: £5,000 per year, with employers over £100,000 in NIC liability ineligible
• New allowance from April 2025: £10,500 per year with no eligibility cap
• What this means for employers: All employers (except those with specific exemptions) can claim up to £10,500 off their annual NIC bill.

Check the UK government's Employment Allowance eligibility criteria to see if you qualify.

What these changes mean for your small business

These changes increase your employment costs. You now pay National Insurance earlier and at a higher rate for each employee.

The impact is already showing in hiring decisions. Xero Small Business Insights data shows UK small business jobs growth fell to just +1.6% year-on-year. That is roughly half the long-term average.

Some sectors feel the pressure more than others. Here is who is most affected:

• Part-time staff: You now pay NICs on wages between £5,000 and £9,100 where none existed before.
• Lower-paid employees: Earlier NIC liability means higher costs per employee.
• Growing businesses: The higher rate applies to all staff earning above £5,000.

Labour-intensive sectors such as hospitality have the most to gain from reliefs like Employment Allowance. Hospitality jobs growth slowed to just +0.4% in the March quarter of 2026, making cost offsets essential.

The Employment Allowance increase to £10,500 can offset these higher costs. If your total employer NICs are below £10,500, you could reduce your liability to zero.

How much more will you pay per employee?

The combined effect of the higher rate and lower threshold adds up quickly. Here is what employer National Insurance looks like at three common salary levels.

• Employee earning £20,000 per year: 2024/25 cost was £1,504. The 2025/26 cost is £2,250, an extra £746 per year.
• Employee earning £30,000 per year: 2024/25 cost was £2,884. The 2025/26 cost is £3,750, an extra £866 per year.
• Employee earning £50,000 per year: 2024/25 cost was £5,644. The 2025/26 cost is £6,750, an extra £1,106 per year.

The Employment Allowance can reduce these figures. A business with three employees on £30,000 each would owe £11,250 in employer NICs. Subtract the £10,500 allowance and you pay just £750.

How to reduce employer National Insurance costs

You can offset higher employer NICs with the right approach. Several strategies lower your bill while keeping your team fairly compensated.

1. Use salary sacrifice arrangements

Salary sacrifice lets an employee give up part of their gross salary in exchange for a non-cash benefit. Neither you nor the employee pays National Insurance on the sacrificed amount.

Common salary sacrifice options include:

• Pension contributions: Take-home pay reduces slightly, but both sides save on NICs and the pension pot grows faster.
• Electric vehicles: Company car schemes for electric vehicles attract a low benefit-in-kind rate (currently 2%).
• Cycle to work schemes: A smaller saving per employee, but straightforward to set up and popular with staff.

Salary sacrifice suits some employees more than others. Always confirm it keeps pay at or above the National Minimum Wage.

2. Claim Employment Allowance

Claiming Employment Allowance is one of the simplest ways to cut your employer NIC bill.

• Check eligibility: Most small businesses paying Class 1 NICs qualify, including charities. You need at least one employee beyond the sole director.
• Claim through payroll software: Most payroll platforms let you activate the claim with a few clicks.
• Claim early in the tax year: The allowance offsets your NICs from the first payroll run.

3. Use Small Employers' Relief

Small Employers' Relief may apply if your total employer NIC liability was £45,000 or less last tax year. This lets you reclaim 108.5% of statutory payments from HMRC, rather than the standard 92%.

The extra 16.5% covers the National Insurance costs associated with these payments. If you have employees on statutory leave, this relief can make a meaningful difference.

How your business can prepare for National Insurance changes

Preparing for National Insurance changes helps you stay compliant, manage increased costs, and claim available reliefs.

1. Review your payroll data

Start by calculating your new NIC costs using the updated rates and thresholds.

• For employees earning £5,000 to £9,100: calculate 15% National Insurance on this amount (previously £0).
• For employees earning above £9,100: apply the new 15% rate instead of 13.8%.
• For your total workforce: add up the additional costs to see the full impact.

2. Check your Employment Allowance eligibility

More businesses now qualify because the eligibility restrictions have been removed.

• Note the removed cap: The £100,000 eligibility cap no longer applies.
• Claim up to £10,500: This is up from £5,000 in the previous tax year.
• Apply through HMRC: You can also activate the claim through your payroll software.

Even if your business was not eligible before, check again under the new rules.

3. Consider budgets and cash flow

Assess your budget capacity for higher employment costs. Multiply affected wages by the 1.2% rate increase and add the new threshold costs.

Wage growth across UK small businesses is easing. Wages growth slowed to +2.7% year-on-year in the December quarter of 2025. Planning ahead helps you absorb higher costs smoothly.

Map out where the extra costs sit, then explore reliefs, salary sacrifice, or short-term funding to bridge the gap.

4. Ask your accountant or payroll provider for advice

Ask your accountant how these new rules affect your business. They can help you stay compliant and claim all available reliefs.

5. Think about automating your payroll

Automating your payroll helps you keep up with changing rules and reduce errors. Find out how Xero Payroll can help your business.

Getting your payroll ready for the changes

Once you understand the National Insurance changes, the next step is applying them to your payroll. Accurate calculations are essential for staying compliant.

1. Update your payroll system

Your payroll process must reflect the new rules from 6 April 2025. This includes:

• Confirm your software has applied the April 2025 rate and threshold updates.
• Activate your Employment Allowance claim for the current tax year.
• Check your reclaim rate is set to 108.5% if you qualify for Small Employers' Relief.

Run a test pay run to verify the figures before your first live submission.

2. Automate for accuracy

Manually adjusting payroll calculations takes time and increases the risk of errors. Payroll software automatically uses the latest rates and thresholds.

Xero Payroll handles these updates for you. Your calculations stay compliant with HMRC regulations, and you claim the correct reliefs automatically.

What's changing for National Insurance in 2026–27?

More National Insurance changes are on the way. Several further developments are confirmed for the 2026–27 tax year and beyond.

• Frozen thresholds through 2030–31: The secondary threshold of £5,000 stays at that level until at least April 2028. The broader NI threshold freeze extends through the 2030–31 tax year.
• Lower earnings limit increase: The lower earnings limit rises to £6,708 from April 2026. Employees earning above this level qualify for certain state benefits.
• Statutory Sick Pay reform: From April 2026, the lower earnings limit no longer restricts eligibility for Statutory Sick Pay. More lower-paid employees will qualify.
• Mandatory payrolling of benefits in kind: HMRC delayed this move from April 2026 to April 2027. Employers will need to report benefits through payroll in real time.

Keeping your payroll software up to date is the simplest way to stay ahead of these changes.

Stay on top of National Insurance changes with Xero

National Insurance rules keep evolving, from frozen thresholds and rate rises to new reporting requirements. Staying compliant is straightforward when your payroll software handles the calculations.

Xero Payroll automatically applies the latest HMRC rates and thresholds. It calculates employer NICs for each pay run and helps you claim Employment Allowance. That means fewer errors and less admin, so you spend more time running your business. To try it for yourself, get one month free.

FAQs on National Insurance

Here are answers to frequently asked questions about National Insurance and the changes from April 2025.

Will my employees' take-home pay change?

Employee take-home pay stays the same. The 2025 National Insurance changes apply only to employer contributions.

Can all small businesses claim the Employment Allowance?

Most small businesses paying Class 1 NICs qualify, provided they operate primarily in the private sector. Check your eligibility using the HMRC criteria before your first payroll run of the tax year.

What happens if I overpay employer NICs?

You can reclaim overpaid NICs through your payroll software or by contacting HMRC directly. Most payroll systems adjust future payments automatically once the error is corrected.

I'm self-employed. Do the new rules affect me?

If you are self-employed and have staff, the employer NIC changes apply to you as an employer. For your own income, Class 4 NICs remain at 6% on profits between £12,570 and £50,270. Class 2 NICs have been effectively abolished.

Does salary sacrifice affect statutory pay calculations?

Yes. Statutory pay is based on the reduced salary after the sacrifice. This can lower maternity, paternity, and sick pay entitlements, so check the impact before setting up a scheme.

Do these NI changes affect benefits in kind?

Benefits in kind are taxed the same way under the April 2025 NIC changes. However, mandatory payrolling of benefits in kind begins in April 2027, replacing the annual P11D process.