Employers will have to start paying higher National Insurance (NI) contributions from Sunday, 6 April, when changes announced in the Autumn Budget kick in.
The changes are two-fold. Firstly, the rate of employer contributions will increase from 13.8% to 15%. Secondly, the threshold at which businesses begin paying the tax on an employee’s salary will drop from £9,100 per year to £5,000.
A survey of 52 leading retailers, conducted by the British Retail Consortium earlier this year, suggested as many as two-thirds of businesses could look to raise prices to help offset the costs. Around half of businesses said they would look to reduce hours and overtime or staff headcount.
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In an interview this week, cosmetics company Lush told the BBC that, with 3,600 employees in the UK and Ireland, it would need to find an extra £2.7 million per year. Meanwhile, car servicing and repair company Kwik Fit estimated it would need to find £5 million to cover the costs across its 5,000 employees.
The NI changes will kick in at the same time as the National Living Wage goes up by 6.7%, adding further pressure for businesses. UK retailer Next has previously indicated its wage bill could surge by £67 million altogether.
Against a challenging backdrop, UK economic growth forecasts for 2025 have been downgraded. Both the Bank of England and the Office for Budget Responsibility have slashed their projections in half – from 1.5% to 0.75%, and from 2% to 1% respectively.
Consultancy Capital Economics has also adopted a gloomier tone. Higher business taxes and the uncertain global backdrop have been a bigger drag than previously thought, the consultancy said, while the boost from government spending has been smaller.
Why did the government hike employers’ National Insurance?
Reeves was in a tight spot when she announced the National Insurance increase in October. Labour had pledged not to increase taxes for working people, but needed to find more money to fund public services and meet its fiscal rules.
Against this backdrop, taxing businesses seemed like an expedient move. However, critics of the policy have argued it is foolish to think the hike won’t impact working people, with businesses having warned that pay rises will be more limited, redundancies will increase, and inflation will rise.
In the latest quarterly survey from the British Chambers of Commerce (BCC), fewer firms reported an increase in sales, investment and confidence, and taxation remained a top concern cited by 59% of respondents.
“It is clear that business sentiment is in a slump following the Autumn Budget last year and this fresh dataset shows no improvement to that. In some indicators, we have seen a further worsening,” said David Bharier, the BCC’s head of research.
“This is to be expected as costs have piled on businesses simultaneously. On the domestic side, tax rises (specifically the NI increase) are consistently cited by businesses as a concern. A global tariff war is also a major blow for both importers and exporters,” he added.
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”.
Who pays National Insurance?
National Insurance is the second-biggest source of revenue for the government after income tax. In the 2022/23 tax year (the most recent figures available), NI contributions raised more than £179 billion, equivalent to 22% of total tax receipts.
Employers foot the biggest part of the NI bill. They paid 61% of the total in 2022/23, versus the 35% paid by employees.
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:
Your weekly earnings | Class 1 National Insurance rate | How much you will pay if you earn £1,000 a week |
£0-£242 | 0% | £0 on the first £242 |
£242.01 to £967 | 8% | £58 on the next £725 |
Over £967 | 2% | 66p on the next £33 |
Employer NI contributions
Under current rules, employers start making NI contributions for an employee once their salary hits £175 per week, which is equivalent to £9,100 per year. From 6 April 2025, the threshold will drop to £96 per week, or £5,000 per year.
Currently, contributions are paid at a rate of 13.8% but this will also increase to 15%.
This means employers will go from paying £113.85 to £135.60 per week in National Insurance once the rules change, assuming the employee 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 £5,000 in total.
Under current rules, you can only claim this allowance if your annual NI liabilities were less than £100,000 in the previous tax year. In other words, only small businesses are eligible for the allowance.
However, to soften the blow of the Autumn Budget, Reeves announced that this allowance would be increased to £10,500 per year. The £100,000 threshold will also be removed, meaning most businesses or charities will be able to apply.
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