National Insurance Changes 2025-26: What You Need to Know

What are the key changes to National Insurance in the next tax year of 2025-26?

In April 2025, significant changes to the UK’s National Insurance Contributions (NICs) will come into effect, impacting both employers and employees. These reforms, announced in the October 2024 Budget by Chancellor Rachel Reeves, aim to bolster public finances and invest in public services. Understanding and navigating these changes is crucial for businesses and individuals alike. So, what are those changes?

Key Changes to Employee National Insurance in 2025

1. Increase in Employer NIC Rate: The rate for employer NICs will rise from 13.8% to 15%.

2. Reduction in Secondary Threshold: The earnings threshold at which employers start paying NICs will decrease from £9,100 to £5,000 per annum.

3. Increase in Employment Allowance: To mitigate the impact on smaller businesses, the Employment Allowance will increase from £5,000 to £10,500, allowing eligible employers to reduce their NIC liability.

4. Changes to Class 1A and 1B NICs: Rates for Class 1A (on expenses and benefits) and Class 1B (on PAYE Settlement Agreements) NICs will also rise to 15%.

5. National Minimum Wage Increase: From April 2025, the National Living Wage for workers aged 21 and over will increase to £12.21 per hour.

How the National Insurance update affects Employers

The combined effect of increased NIC rates and a lower threshold means that employers will face higher payroll costs. This change has raised concerns among businesses, particularly in the retail sector, about potential price increases and operational challenges.

Strategies for Employers

To navigate these changes, employers might consider:

• Implementing Salary Sacrifice Schemes: Allowing employees to exchange part of their salary for non-cash benefits, such as increased pension contributions, can reduce both employer and employee NICs.

• Reviewing Workforce Structures: Assessing the balance between full-time and part-time staff, outsourcing, or automation to manage increased costs.

• Maximising Employment Allowance: Ensuring eligibility and full utilisation of the increased Employment Allowance to offset NIC liabilities.

Implications for Employees

While the NIC changes primarily affect employers, employees should be aware of potential indirect effects, such as:

• Wage Adjustments: Employers may reconsider salary increases or bonuses due to higher employment costs.

• Changes in Benefits: Alterations to non-wage benefits or increased use of salary sacrifice arrangements could impact take-home pay and entitlements.

Action Steps for Employees

• Review Employment Contracts: Understand how potential changes might affect your net pay and benefits.

• Consider Voluntary NIC Contributions: To fill any gaps in your National Insurance record, especially if you have periods of low or no earnings, consider making voluntary contributions before the 5 April 2025 deadline.

Preparing for 2025 National Insurance Reforms

The upcoming National Insurance changes represent a significant shift in the UK’s payroll landscape. Proactive planning and strategic adjustments by both employers and employees are essential to navigate these changes effectively. Staying informed and seeking professional advice can help mitigate potential challenges and capitalise on available opportunities.

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Unsure how these changes impact your finances? Contact us at JML Accountancy today.