What has changed with employers’ National Insurance – and how will it impact you?

Employers are now paying higher National Insurance contributions after changes to the tax kicked in on 6 April, the start of the new tax year. Chancellor Rachel Reeves first announced the policy in her 2024 Autumn Budget.

The changes are two-fold. Firstly, the rate of employer contributions has increased from 13.8% to 15%. Secondly, the threshold for contributions has dropped, meaning businesses now begin paying the tax once a salary hits £5,000, down from £9,100 previously.

Shortly after the policy was announced, the British Retail Consortium (BRC) surveyed 52 leading retailers on the likely impact of the tax hike.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

As many as two-thirds of businesses said they were thinking about raising prices to help offset the costs. Around half said they were looking at reducing hours and overtime or staff headcount.

Now that the policy has kicked in, we are starting to see the effects in the economic data.

The latest GDP figures from the Office for National Statistics (ONS) show the UK economy shrank by 0.3% in April. Tariffs from US president Donald Trump also contributed to the slump.

In an ONS survey conducted in late May, over three quarters (77%) of businesses with 10 or more employees said their staffing costs had increased over the past three months. This was up 41 percentage points compared with late February, and up 17 percentage points compared with a year ago.

As well as higher taxes and tariff uncertainty, businesses are battling persistent inflation, high borrowing costs, and a higher National Living Wage.

Why did the government hike employers’ National Insurance?

Reeves was in a tight spot when she announced the National Insurance increase last October.

In the lead-up to the general election, Labour pledged not to increase taxes for working people, meaning Reeves was forced to look elsewhere when raising revenue to pay for day-to-day spending.

Against this backdrop, taxing businesses looked like a more expedient move. However, critics of the policy have argued it is foolish to think the hike won’t impact workers.

The government is attempting to limit the impact of the NI policy on small businesses by broadening existing tax relief measures, known as the employment allowance. “This means 865,000 employers won’t pay any National Insurance at all next year,” Reeves said, “and over one million will pay the same or less than they did previously”.

However, industry surveys still paint a challenging picture overall. Financial services company Canada Life found that 26% of small and medium-sized businesses plan to reduce pay rises and bonuses to offset the cost, while 12% plan to reduce employee benefits or make redundancies. Twenty percent say they will accept lower profitability.

Who pays National Insurance?

National Insurance is the second-biggest source of revenue for the government after income tax. In the 2024/25 tax year, NI contributions raised more than £172 billion, equivalent to 20% of total tax receipts.

Employers foot the biggest part of the NI bill. They paid 67% of the total in 2024/25.

Some self-employed people are also required to pay NI contributions, depending on how high their profits are. Those beneath the threshold and those who are not currently working can choose to pay voluntary contributions to avoid gaps in their NI record. Your NI record is used to calculate benefits like the state pension.

How much do employees pay versus employers?

There are different classes of National Insurance, depending on your working status. If you are employed, you will pay Class 1. This is split into primary contributions which are paid by the employee, and secondary contributions which are paid by the employer.

Employee NI contributions

There are different National Insurance rates depending on how much you get paid. An employee who earned £1,000 a week would pay £58.66 per week in National Insurance contributions, as the below table shows:

Employer NI contributions

Under the old rules, employers started making NI contributions for an employee once their salary hit £175 per week, equivalent to £9,100 per year. On 6 April 2025, the threshold dropped to £96 per week, equivalent to £5,000 per year.

Previously, contributions were paid at a rate of 13.8%. This has now increased to 15%.

This means employers have gone from paying £113.85 to £135.60 per week in National Insurance, assuming the employee in question earns £1,000 per week. That is an increase of around £22 per week, and more than £1,100 per year.

What tax relief can employers claim?

A tax relief measure called the employment allowance allows some employers to reduce their annual National Insurance liability by up to £10,500 in total. This was previously £5,000, but Reeves increased the allowance as part of the Autumn Budget.

Under previous rules, you could only claim this allowance if your annual NI liability was less than £100,000 in the previous tax year. This meant only small businesses were eligible for the allowance.

To soften the blow of the Budget, Reeves removed the £100,000 threshold, meaning most businesses or charities can now apply for tax relief.