As a small business owner, understanding the financial implications of legislative changes is critical to staying ahead.
The adjustments to National Insurance Contributions (NICs) and Employment Allowance, effective April 2025, bring new challenges and opportunities for small employers.
This article breaks down what’s changing and the potential benefits for your business.
What’s Changing in April 2025?
- Employer NIC Rate Increase: The NIC rate paid by employers will rise from
13.8% to 15%, increasing payroll costs. - Lower Secondary Threshold: The earnings level at which employers start paying NICs
will drop from £9,100 to £5,000 per year, meaning employers will pay NICs on more of their employees’ wages. - Enhanced Employment Allowance: The Employment Allowance will increase from
£5,000 to £10,500 annually. The cap on eligibility for businesses with NIC liabilities
over £100,000 will be removed, meaning more businesses will qualify.
What’s Changing in April 2025?
- Employer NIC Rate Increase: The NIC rate paid by employers will rise from
13.8% to 15%, increasing payroll costs. - Lower Secondary Threshold: The earnings level at which employers start paying NICs
will drop from £9,100 to £5,000 per year, meaning employers will pay NICs on more of their employees’ wages. - Enhanced Employment Allowance: The Employment Allowance will increase from
£5,000 to £10,500 annually. The cap on eligibility for businesses with NIC liabilities
over £100,000 will be removed, meaning more businesses will qualify.
How Small Employers Can Benefit
1. Doubling of Employment Allowance
The increase in Employment Allowance provides eligible businesses with an annual offset of up to
£10,500 against their NIC liabilities. For many small businesses, this could mean
completely negating employer NIC payments on a significant portion of their payroll costs.
2. Wider Eligibility
With the removal of the £100,000 NIC cap, growing businesses previously excluded from the allowance can now take advantage.
This change is particularly beneficial for marketing agencies transitioning from solopreneurs to team-based operations,
as it eases the financial burden of scaling payroll.
3. Strategic Investment Opportunities
The savings from increased Employment Allowance can be reinvested into growth areas, such as technology upgrades,
marketing campaigns, or hiring additional team members.
Real-World Examples
Example 1: 5 Employees Earning £35K Each
A small business with 5 employees earning £35,000 per year each will see an initial increase
in NIC liabilities due to the higher NIC rate and lower threshold. However, the doubling of Employment Allowance
to £10,500 offsets much of this cost, leaving the business slightly better off overall compared to pre-2025 rules.
Example 2: 5 Employees Earning £50K Each
For a business with 5 employees earning £50,000 each, the total employer NIC liability increases with
the higher rate and lower threshold. However, thanks to the enhanced Employment Allowance:
- Pre-2025 NIC cost (after £5,000 allowance): £23,221
- Post-2025 NIC cost (after £10,500 allowance): £23,250
Net Impact: Only £29 more per year.
Example 3: 4 Employees Earning £75K Each
For a business with 4 employees earning £75,000 each, the total employer NIC liability increases
marginally with the higher rate and lower threshold. However, the enhanced Employment Allowance minimizes the impact:
- Pre-2025 NIC cost (after £5,000 allowance): £31,376.80
- Post-2025 NIC cost (after £10,500 allowance): £31,500
Net Impact: Only £123.20 more per year.
These examples highlight how the enhanced Employment Allowance helps offset most of the added burden,
keeping costs nearly identical despite the change.
Real-World Examples
Example 1: 5 Employees Earning £35K Each
A small business with 5 employees earning £35,000 per year each will see an initial increase
in NIC liabilities due to the higher NIC rate and lower threshold. However, the doubling of Employment Allowance
to £10,500 offsets much of this cost, leaving the business slightly better off overall compared to pre-2025 rules.
Example 2: 5 Employees Earning £50K Each
For a business with 5 employees earning £50,000 each, the total employer NIC liability increases with
the higher rate and lower threshold. However, thanks to the enhanced Employment Allowance:
- Pre-2025 NIC cost (after £5,000 allowance): £23,221
- Post-2025 NIC cost (after £10,500 allowance): £23,250
Net Impact: Only £29 more per year.
Example 3: 4 Employees Earning £75K Each
For a business with 4 employees earning £75,000 each, the total employer NIC liability increases
marginally with the higher rate and lower threshold. However, the enhanced Employment Allowance minimizes the impact:
- Pre-2025 NIC cost (after £5,000 allowance): £31,376.80
- Post-2025 NIC cost (after £10,500 allowance): £31,500
Net Impact: Only £123.20 more per year.
These examples highlight how the enhanced Employment Allowance helps offset most of the added burden,
keeping costs nearly identical despite the change.
Practical Steps for Small Employers
- Review Your NIC Position: Calculate your NIC liabilities and determine how the enhanced
Employment Allowance can reduce costs. - Invest in Expert Advice: Consult with an accountant or payroll specialist to ensure compliance
and maximize savings. - Plan Ahead: Use savings from Employment Allowance to support your long-term growth strategy,
whether by investing in your team, upgrading systems, or expanding services.
The Bottom Line
While the April 2025 NIC and Employment Allowance changes introduce higher costs, they also offer opportunities for smart financial planning.
By leveraging the enhanced Employment Allowance, small employers can mitigate the impact, reduce tax burdens, and reinvest savings into growth.
Each case will differ, but as the examples above illustrate, strategic planning can leave many small businesses better off—or see costs increase only marginally.
Ready to Take Action?
Speak with an accounting professional to create a tailored plan that helps your business thrive despite these changes.
With the right strategies, you can turn potential challenges into a springboard for success.
Prepare now, and turn legislative changes into opportunities for your business!
The Bottom Line
While the April 2025 NIC and Employment Allowance changes introduce higher costs, they also offer opportunities for smart financial planning.
By leveraging the enhanced Employment Allowance, small employers can mitigate the impact, reduce tax burdens, and reinvest savings into growth.
Each case will differ, but as the examples above illustrate, strategic planning can leave many small businesses better off—or see costs increase only marginally.
Ready to Take Action?
Speak with an accounting professional to create a tailored plan that helps your business thrive despite these changes.
With the right strategies, you can turn potential challenges into a springboard for success.
Prepare now, and turn legislative changes into opportunities for your business!
