National Insurance Changes
From 6 April 2025, there will be the following key changes to National Insurance:
Changes to Contribution Rates:
The rate at which employers pay National Insurance will be adjusted from 13.8% to 15%. This will increase the cost of employing all staff from 6 April 2025.Decrease in National Insurance Thresholds for employees:
On top of the rate increase above, the secondary threshold (the point at which employers start paying NI on their employees wages) is decreasing from an annual equivalent of £9,100 to £5,000. This means a further £4,100 of salary is chargeable at 15% for all employers on each employee on top of an additional 1.2% (on all wages above £9,100).Increase in National Insurance Thresholds for employees:
The lower earnings limit and primary threshold for National Insurance contributions will be raised. This means that employees who currently pay lower rates of National Insurance may see a reduction in their contributions, and some may no longer be liable to pay if their earnings fall below the new thresholds.
National Insurance Charges at Salary Rates
To help you better understand how the changes may impact your payroll, the table below provides an estimate of the National Insurance charges for different salary rates in £5,000 increments. The figures are based on current National Insurance rates, which may be subject to change once the new thresholds and rates are announced.
Salary (£) | Employer NI Contribution | ||||
|---|---|---|---|---|---|
Year to 5 April 2025 (£) | From 6 April 2025 (£) | Increase | |||
5,000 | 0.00 | 0.00 | - | ||
10,000 | 124.20 | 750.00 | 625.80 | ||
15,000 | 814.20 | 1,500.00 | 685.80 | ||
20,000 | 1,504.20 | 2,250.00 | 745.80 | ||
25,000 | 2,194.20 | 3,000.00 | 805.80 | ||
30,000 | 2,884.20 | 3,750.00 | 865.80 | ||
35,000 | 3,574.20 | 4,500.00 | 925.80 | ||
40,000 | 4,264.20 | 5,250.00 | 985.80 | ||
45,000 | 4,954.20 | 6,000.00 | 1,045.80 | ||
50,000 | 5,644.20 | 6,750.00 | 1,105.80 | ||
Owner/Managers who pay a small salary and take some income by way of dividends will now have a monthly National Insurance liability when before it may have previously been zero.
Due to the changes to the tax system, Owners / Managers that take an income from their companies greater than £400,000 are likely to find it cheaper to take profits as salary rather than dividends with these changes. If you are in that band, please do contact us for specific advice
All employers will see a rise in their monthly PAYE payment from April 2025.
Employers may want to factor this rise in employment costs when having pay rise discussions with their employees.
Impact on Owner/Managers
As a result of the changes above we recommend that most directors of owner manager businesses pay a minimum salary of £12,570 per annum with effect from April 2025 if not already doing so.
This will ensure that your tax-free personal allowance is utilised in full against employment income and expensed against Corporation Tax which will partly compensate for the new Employers National Insurance charges coming into effect.
As before, for the majority of owner managers, the balance of your remuneration should be paid by way of dividend. If you wish to keep within your basic rate tax band, this figure will equate to £37,700 annually.
Employment Allowance Changes
The Employment Allowance, which reduces the amount of National Insurance contributions that small employers must pay, will also see some updates from 6 April 2025:
Eligibility Criteria:
The previous cap on claiming Employment Allowance (Total NI of under £100,000 per year) is removed from 6 April 2025 meaning more employers will qualify. However, one or two director only payrolls will continue to be blocked from an Employment Allowance claim.Allowance Amount:
The maximum amount of the Employment Allowance that an employer can claim increase from £5,000 per annum to £10,500. This should help offset the NI rises, particularly for smaller employers.
Where we prepare the payroll we will calculate the Employment Allowance you can claim, against your monthly PAYE liability.
Taking all of these measures together it is likely that the cost to employee staff is increasing and employers do need to factor that in to their plans.
National Minimum Wages changes
From 6 April 2025 there are changes to the National Minimum wage. The table below shows these:
Age Band | Previous Rate | New Rate | An increase of: | % age increase |
|---|---|---|---|---|
Aged 21 + | £11.44 | £12.21 | £0.77 | 6.73% |
Aged 18 to 20 | £8.60 | £10.00 | £1.40 | 16.28% |
Ages 16 to 17 | £6.40 | £7.55 | £1.15 | 17.97% |
Apprentice rate* | £6.40 | £7.55 | £1.15 | 17.97% |
*The apprentice rate applies to individuals who are either employed on apprenticeship schemes or are directly engaged under a contract of apprenticeship.
Importantly, where an apprentice is aged 19 and over and has completed the first year of their apprenticeship, they will cease to be entitled to the apprenticeship rate and instead be eligible for whatever their age appropriate rate is.
These changes will increase the cost of employing all employees but particularly those aged under 21.