New N.I. Changes: Winners and Losers

Your payroll costs could be heading upwards…

The UK government is rolling out significant changes to Employer National Insurance (NI) from April 2025, and it’s set to impact businesses of all sizes. Whether you run a small consultancy or a large retail business, these updates could affect your payroll costs—and the majority will come out behind.

So, what’s changing? Who stands to gain? And who’s in for a bigger bill? Let’s break it down.

Why is This Happening?

The government is adjusting Employer NI as part of a broader strategy to increase revenue and rebalance tax distribution across businesses. The goal is to offset public spending while supporting small businesses with targeted relief measures.

What’s Changing?

From April 2025, two key changes to Employer National Insurance will take effect:

The bad news:

• NI contributions will increase from 13.8% to 15%.

• The threshold at which employers start paying NI will drop from £9,100 to £5,000. This means you’ll start paying NI on lower wages.

The good news:

• The Employment Allowance, which reduces NI costs for eligible businesses, will rise from £5,000 to £10,500.

• Smaller businesses with lower payroll costs could actually pay less under the new rules.

The reality:

• If you have fewer employees and can claim the Employment Allowance, you might save money.

• If you have a larger team or higher wages, your NI bill will increase.

Winners & Losers: 4 Business Scenarios

To understand the impact, let’s look at four real-world business examples:

Scenario 1: Consultancy Firm (2 Employees, £40k Salary Each)

Annual Saving: £3,528
This is the highest possible saving, thanks to the increased Employment Allowance. However, in reality, many consultancies with only two employees include a director who takes earnings via dividends, reducing NI liability.

Scenario 2: Retail Business (5 Employees, £26k Average Salary)

Annual Saving: £1,411
A typical small business setup that benefits from the allowance. But once you hit 7+ full-time employees, the allowance no longer offsets rising NI, leading to higher costs.

Scenario 3: Manufacturing Firm (15 Employees, £30k Average Salary)

Annual Cost Increase: £7,487
Larger teams will see rising NI bills. If you employ 7 or more full-time staff, expect additional costs.

Scenario 4: Marketing Agency (30 Employees, £40k Average Salary)

Annual Cost Increase: £29,574
If your Employer’s NI bill was over £100k last year, you lose the allowance entirely. Growth or wage increases will only add to your costs.

Key Takeaways

• If you employ 5 or fewer full-time employees earning under £49k, you win.

• If you employ 7 or more full-time staff, your costs increase.

• If your Employer’s NI bill exceeded £100k last year, expect a minimum increase of £10k (but likely, it will be much more).

How Exactly will the changes affect my business?

Want to know exactly what this means for you? Get in touch today, and we’ll help you make sense of it all.