Timeframe:
From April 2025
Action points:
NI Contributions will increase to a total of 15%, and the National Insurance primary threshold – which is when employers begin to pay NI, will be lowered from £9,100 to £5,000.
Although the NI threshold has been lowered, the amount of National Insurance a business can offset will increase as the employment allowance will change from £5,000 to £10,500.
Planning points:
When employers’ National Insurance (NI) contributions increase, and the threshold drops, it puts more financial strain on small businesses, so here are some key planning points to help manage the impact:
Reassess your budget and cash flow
- Adjust forecasts: Include the higher NI contributions in your financial forecasts, factoring in both the increase in percentage, the lower threshold and the increased Employers’ Allowance
- Monitor cash flow: With increased outgoings, regular cash flow monitoring will help you stay on top of finances and spot any shortfalls early on.
Evaluate employee costs strategically
- Review staff hours: Consider whether full-time or part-time adjustments make sense for your team. Sometimes fewer hours can help manage NI costs without impacting productivity.
- Look at benefits packages: If you offer other benefits (like bonuses or flexible perks), consider how you can adjust them without affecting employee satisfaction, potentially offsetting the increased NI costs.
Consider freelancers or contractors where possible
- Freelance or contract work: These roles often don’t require NI contributions but be sure to follow employment rules to avoid potential issues around ‘disguised employment’.
- Project based contracts: For short-term or specialised work, using contractors can be a cost-effective solution.
Utilise salary sacrifice schemes
- Pension contributions: Offering a pension scheme where employees can make larger pre-tax contributions reduces their taxable income, potentially saving on NI for both them and you.
- Other salary sacrifice options: If you provide perks like cycle-to-work schemes or childcare, these can be salary-sacrificed to reduce the NI payable.
Optimise employment allowance
- Claim the allowance: If eligible, ensure you’re using the Employment Allowance, which can offset some NI costs for smaller businesses. This is rising from £5,000 up to £10,500 in 25/26. It’s particularly helpful if you’re employing a small team and could mean you see no increases at all.
Adjust pricing (if needed)
- Pass on a small price increase: Depending on your industry, a slight price increase can help cover the rising costs. Even a few percentage points could make a difference without majorly affecting demand.
- Communicate with Customers: If you do increase prices, let customers know the reasons behind it, including rising employment costs, so they understand the value they’re getting.
Invest in efficiency improvements
- Process automation: Automate tasks like invoicing, payroll, and inventory management to reduce the need for additional hires.
- Staff training: Investing in training to make your team more efficient and versatile can save costs in the long run and reduce reliance on extra headcount.
These adjustments should help you navigate the NI changes with minimal disruption to your business. If you’re using accounting software, it can also help track these adjustments and give you a clear view of the impact on your finances.