What do small employers need to know about National Insurance Contribution increases?
National Insurance Contributions (NIC) are a significant cost for small businesses employing staff in Northern Ireland. With recent changes to NIC rates and thresholds, it’s crucial for small employers to understand how these costs impact their business and how to plan effectively.
In this blog, we’ll break down what NIC means for small businesses, the latest changes, and ways to manage these costs efficiently.
What Are National Insurance Contributions (NIC)?
NIC is a tax that employers and employees pay to fund the UK’s social security system, including the State Pension, NHS, and other benefits. As a small employer, you are responsible for:
- Employer NICs – A percentage of employees’ wages paid by businesses.
- Employee NICs – Deducted from employees’ salaries through PAYE before they receive their wages.
The rate of employer’s NI contributions (NICs) will increase by 1.2 percentage points to 15% from April 2025. The second hit to employers, in addition to this NI rise, comes with the lowering of the secondary threshold (ST), which means employers will start to pay NICs on employees earnings from £5,000 instead, of the current £9,100 threshold.
In order to support small businesses, the Employment Allowance (EA) will be increasing from £5,000 to £10,500 and the current Employment Allowance cap will be removed. Meaning employer’s with employers NIC liability over £100,000 in the previous tax year, but would be otherwise eligible, will now be able to claim the £10,500 EA.
How Does NIC Impact Small Businesses?
- Increased Payroll Costs
Employer NIC is an additional cost on top of wages, meaning any increase in salaries (such as minimum wage rises) also raises NIC contributions.
- Cash Flow Challenges
For small businesses, managing cash flow is crucial, and unexpected NIC increases can strain budgets if not planned for in advance.
- Impact on Hiring Decisions
Higher NIC costs can make it more expensive to hire staff, leading some small businesses to reconsider recruitment plans or explore alternatives like freelancers or part-time contracts.
- How to Manage NIC Costs Effectively
✔ Claim the Employment Allowance – If you haven’t already, make sure you apply.
✔ Optimise Payroll Structure – Consider tax-efficient ways to pay staff, such as salary sacrifice schemes.
✔ Plan for Future Increases – Factor NIC costs into wage and hiring budgets.
✔ Use Outsourced Payroll Services – Reduces admin time and ensures compliance.
At Satori Accounting, we help small businesses manage payroll, NIC planning, and financial forecasting to stay ahead of rising costs. To further support small businesses, we have put together a simple workbook and accompanying video to allow you to calculate the impact of the new NIC rate on your business finances, simply click the button below.