Changes to employer’s National Insurance (Employers NIC) announced at the 2024 Autumn statement have now begun to take effect with the start of the 2025/26 tax year.
In this blog I will look at what those changes are, consider the different impact on smaller and larger employers, and finally what this means for single director companies.
What are the changes?
In summary the changes were as follows:
- The salary threshold where employer’s NIC becomes chargeable is dropped from £9,100 to £5,000
- The rate at which employer’s NIC is payable increases from 13.8% to 15%
- The employment allowance, which is the amount that most employers can reduce their total annual employer’s NIC charge by, is increased from £5,000 to £10,500.
- Single-director companies continue to be exempt from claiming the employment allowance.
The overall effect of these changes is that smaller employers with only a few employees are likely to be better off, with larger employers likely to be worse off.
In 2024/25, for an employee earning £25,000 the employer’s NIC would have been around £2,194 per employee. In 2025/26 this will increase to £3,000.
What’s the impact on employers?
Here’s a couple of simple examples to illustrate the impact on employers of different sizes:
- Company A – three employees earning £25,000
In 2024/25 the Employer’s NIC charge would be 3 x £2,194 totalling £6,582. After deducting the employment allowance of £5,000 the amount payable to HMRC would have been £1,582.
In 2025/26 the employer’s NIC charge would be 3 x £3,000 totalling £9,000. After deducting the employment allowance of £10,500, there is nothing to pay to HMRC so this company is better off with the new rates.
- Company B – twelve employees earning £25,000
In 2024/25 the Employer’s NIC charge would be 12 x £2,194 totalling £26,328. After deducting the employment allowance of £5,000 the amount payable to HMRC would have been £21,328.
In 2025/26 the employer’s NIC charge would be 12 x £3,000 totalling £36,000, After deducting the employment allowance of £10,500, there is a larger amount payable to HMRC of £25,500.
What about single-director companies?
If, as a director, you are the only person on your company payroll then you are not able to claim the employment allowance. You therefore feel the full impact of the drop in the threshold and the increase in the rates of employer’s NIC and this will have an impact when considering your most tax-efficient remuneration strategy – the salary and/or dividend mix.
In recent years the most efficient strategy has generally been to take a salary from the company up to the personal allowance – tax free for the director, and tax deductible for the limited company.
In 2024/25 the £12,570 salary would be subject to employer’s NIC of £468.86. The total cost to the company of paying a £12,570 salary to the director would be £10,561 after deducting corporation tax relief at 19%.
In 2025/26 the £12,570 salary would be subject to employer’s NIC of £1,135.50. The total cost to the company of paying a £12,570 salary to the director increases to £11,100 after deducting corporation tax relief at 19%.
Despite the increase in the cost, it still remains the most tax efficient way for a director to draw a sum equal to the personal allowance from the company in 2025/26 – dividends are not tax deductible for the company so the cost of paying out a £12,570 dividend is £12,570 so this is still more expensive than the £11,100 salary cost above.
A further advantage of paying the remuneration as salary is that the director will still receive full contribution year towards certain state benefits including the state pension. This would not be the case if a dividend were paid instead.
In summary, while this may feel somewhat contradictory, it is worth the single-director company continuing to pay the full £12,570 salary despite the extra employer’s National Insurance Contributions.
Are there other considerations?
Despite the above, the dividend or salary question has become much more complicated this tax year as the right answer depends on a lot more variables.
The above assumes only one paid director who has no other income sources which use up his personal allowance. What if he does have other income? What if there is more than one paid director? What if there are other employees in addition to the director? What if the director is above state-pension age?
If you have any doubts at all about your remuneration strategy, please do speak to your accountant or adviser to find out more.
