Changes to Employers’ National Insurance and the Employment Allowance from 6th April 2025

The labour government’s first budget has been widely analysed, so in this briefing we are focussing on changes to employers’ class 1 national insurance rates, the threshold at which these kick in, and the employment allowance – all of which will be changing from 6th April 2025

Here’s what will change from 6th April 2025:

·         The main rate for employers’ national insurance will rise from 13.8% to 15%

·         The secondary threshold is the point at which employers’ national insurance starts to be paid. This is going down from £9,100 per year to £5,000 per year. Or in monthly terms from £758 to £416

·         One sweetener for small businesses is the increase in the employment allowance, which will rise from £5,000 to £10,500

A few other points:

·         If you are the director of a limited company, and the only employee, you will not be able to claim the employment allowance.

·         If your company has two or more directors being paid a salary over the employers’ national insurance threshold, you are eligible to claim the employment allowance, as long as you satisfy all the other rules.

·         If you have one member of staff or more, paid through PAYE, and employers’ national insurance liabilities of less than £100,000 in the last tax year, then you can probably claim the employment allowance, in which case it would apply to employers’ national insurance on directors’ payslips too.

·         Many directors take a wage through PAYE for £758 per month to keep below the secondary threshold for employers’ national insurance – from April 2025 a payslip of this level will mean that the wage is subject to employers’ national insurance and £416 will be the maximum monthly wage to stay below said threshold.

·         The shortfall could be made up of dividend payments, as long as your company has profits.

·         You won’t be able to claim the employment allowance if you are a public body or do more than half your work in the public sector. There are also de minimis state aid limits for the sectors of agriculture, fisheries and aquiculture, road freight transport and industry, so it is worth seeking advice if you operate in these sectors.

Case studies:

Helen Ltd

Helen is the sole director of a limited company running a retail food business and employs one member of staff, Arthur, who gets paid £800 per month before tax and national insurance. Helen has always taken a wage of £758 per month and topped this up through dividends.

Helen Ltd can claim the employment allowance, and should have been since they employed Arthur, because Arthur earns over the secondary threshold for employers’ national insurance.

Helen could increase her wage above the secondary threshold, because until the company’s employers’ national insurance liability reaches £10,500 this will be cancelled out by the employment allowance. She will need to be mindful of her other income to see if this is the best way forwards.

The employers’ class 1 national insurance will rise from £70 per year in 2024-25, to £1303 if an employment allowance claim is not made. As this is under both the £5,000 and £10,500 employment allowance no employers’ national insurance will be payable if the employment allowance has been claimed.

Brian Ltd

Brian has a limited company supplying wholesale toys. He has been taking a wage of £758 per month and topped this up through dividends.

He has two members of staff, one earning £45,000 and the other earning £30,000.

For the 2024-25 tax year, Brian Ltd claim the employment allowance of £5000, and the employers’ national insurance liability of £7839 is therefore reduced by £5,000 to £2,839

From 6th April 2025, Brian Ltd’s national insurance liability will increase to £10,362, however because of the employment allowance increasing to £10,500 the amount payable will be zero. Brian could increase his own director’s salary to £10,000 without triggering a liability for employers' national insurance – as long as everyone else’s pay will stay the same throughout the tax year.

Summary:

The changes to employers’ national insurance will cost large firms a lot of money, but small employers will be somewhat protected by increases to the employment allowance, and some will even benefit. It is important for employers to work out what the effect on their business will be, and the sooner they do this the better. Call us if you would like help doing this.