National insurance has changed in 2025: what you need to know and what you can do

Changes to the UK’s National Insurance Contributions (NICs) have now taken effect, increasing to 15% from 13.8%. 

Furthermore, the threshold for which employees’ earnings are liable for employers’ NIC has dropped from £9,100 to £5,000. These adjustments will impact employers and employees across various sectors. 

What has changed?

1. Increase in employer NIC rate: the rate at which employers contribute to National Insurance has risen from 13.8% to 15%.
2. Adjustment of the secondary threshold: the earnings threshold above which employers must pay NICs, the Secondary Threshold, has decreased from £9,100 to £5,000. This means employers will now pay NICs on employee earnings exceeding £5,000 annually, thereby increasing the taxable portion of wages.
3. Changes to Class 1A and 1B NIC rates: the rates for Class 1A NICs (on expenses and benefits) and Class 1B NICs (on PAYE Settlement Agreements) have increased to 15% for the 2025 to 2026 tax year. 

Who is affected?

• Employers: businesses across all sectors face higher employment costs due to the increased NIC rates and the lower Secondary Threshold. This change is particularly significant for sectors with large workforces or those employing low to medium-wage workers.
• Employees: while the primary focus is on employer contributions, employees might experience indirect effects. For instance, businesses may adjust compensation strategies, hiring practices, or pass on increased costs to consumers, potentially influencing job security and wage growth.

What do you need to do?

1. Financial planning: employers should reassess their budgets to account for the increased NIC rates and the expanded scope due to the lower Secondary Threshold. This includes evaluating the impact on overall labour costs and profitability.
2. Review compensation structures: consider exploring alternative compensation methods, such as non-cash benefits or flexible working arrangements, which might be more tax-efficient and could help mitigate the impact of higher NICs.
3. Leverage Employment Allowance: small employers may benefit from the Employment Allowance, which offers relief on NICs. It’s essential to determine eligibility and ensure that claims are made to reduce the NIC burden.
4. Stay informed: tax regulations and thresholds can change. Regularly reviewing updates from HM Revenue & Customs (HMRC) and consulting with financial advisors will help ensure compliance and optimal financial planning.

What can you do to minimise the impact of the changes?

• Invest in productivity: enhancing employee productivity can offset increased labour costs. Consider investing in training, technology and process improvements to achieve more output without proportionally increasing staffing levels.
• Evaluate workforce composition: assess the balance between full-time, part-time and contract workers. Flexible staffing models may provide cost efficiencies and adaptability in managing increased NIC obligations.
• Explore tax-efficient benefits: implementing salary sacrifice schemes for benefits like pensions, childcare or cycle-to-work programs can be advantageous. These arrangements can reduce both employer and employee NICs, offering mutual benefits.
• Consult professionals: engage with your accountant or tax adviser to develop tailored strategies that align with your business model and workforce structure, ensuring compliance and financial efficiency.

The changes to National Insurance Contributions represent a significant shift in the UK’s tax landscape. Proactive planning and strategic adjustments are crucial for employers to navigate these changes effectively. By understanding the implications and exploring adaptive strategies, businesses can position themselves to manage increased costs while maintaining competitiveness and financial health. 

Assessing the potential increase in both your wage and NIC bills is paramount, as is talking to your accountants and their tax teams about any strategy to manage the situation. It is vital that any steps or actions taken do not fall foul of HMRC’s rules and regulations. Non-compliance can lead to penalties, fines and even reputational damage. There could also be a risk that any action taken, whilst seeming to save on tax, could lead to another unintended tax liability. For more information please get in touch by emailing info@streets.uk or visit www.streets.uk