Impact of recent National Insurance increase on small businesses in the UK

As of April 6, 2025, significant changes to the UK’s National Insurance Contributions (NICs) have come into effect, impacting small businesses nationwide. These adjustments, announced in the October 2024 Budget, include an increase in the employer NIC rate from 13.8% to 15% and a reduction in the secondary threshold from £9,100 to £5,000. 

Understanding the Changes

• Increased Employer NIC Rate: Employers are now required to contribute 15% on employee earnings above the secondary threshold, up from the previous 13.8%. 

• Lowered Secondary Threshold: The point at which employers begin paying NICs has decreased from £9,100 to £5,000 annually, meaning a greater portion of employee earnings is subject to NICs. 

Implications for Small Businesses

These changes represent an increased financial obligation for employers, particularly small and medium-sized enterprises (SMEs). The combination of a higher NIC rate and a lower threshold means that businesses will pay more in NICs per employee, potentially affecting cash flow and operational budgets.

Mitigation Strategies

To navigate these changes, small businesses might consider the following approaches:

1. Utilize the Enhanced Employment Allowance: The Employment Allowance has been increased from £5,000 to £10,500, allowing eligible employers to reduce their annual NIC liability. Notably, the £100,000 eligibility threshold has been removed, expanding access to more businesses. 

2. Implement Salary Sacrifice Schemes: By offering salary sacrifice arrangements, employees can exchange part of their gross salary for non-cash benefits, such as increased pension contributions. This reduces both employer and employee NICs, leading to overall tax efficiency. 

3. Review and Adjust Financial Planning: Assessing the overall impact of increased NICs on your business finances is crucial. This may involve revisiting budgets, forecasting future costs, and exploring areas to improve efficiency or reduce expenses without compromising employee satisfaction or product quality.

Conclusion

While the recent changes to National Insurance Contributions present challenges for small businesses, proactive planning and strategic adjustments can help mitigate their impact. Leveraging available allowances and considering tax-efficient compensation strategies are essential steps in adapting to this new financial landscape.

If you’re facing challenges in your entrepreneurial journey, consider reaching out to professional networks or support organisations for guidance and assistance.

Alex Miller is a professional personal and business coach and mentor, working with start-ups and small businesses in the UK and Europe. Find out more by clicking here Eiger Coaching