For the 2025/26 tax year, UK employers will pay National Insurance at a higher rate of 15%, with contributions starting sooner due to a reduced £5,000 Secondary Threshold. This change significantly increases payroll costs for many businesses, making it essential for employers to understand exactly how the new rules work.
As a business owner, I know payroll compliance isn’t optional, especially when NI rates change. The Employer’s NI rate has risen from 13.8% to 15%, meaning a larger portion of each employee’s earnings is now NI-taxable. However, there is some relief: the Employment Allowance has increased to £10,500 for eligible employers.
Here’s what you need to know at a glance:
- Employer NI contributions now apply at 15%
- The £5,000 threshold means you pay more, sooner
- Class 1A and 1B NI rates are also now 15%
- You may be able to claim a £10,500 Employment Allowance
Let’s explore what these changes mean for UK businesses, how you can stay compliant, and where there may be opportunities to save.
What is Employer’s National Insurance and Why Does It Matter?
Employer’s National Insurance is a mandatory contribution that businesses make on behalf of their employees. It forms part of the UK’s social security system and funds state benefits such as the NHS, pensions, and unemployment support.
From a business perspective, Employer NI is a significant portion of overall employment costs and can directly impact hiring decisions, profit margins, and pricing strategies.
The structure of Employer’s National Insurance consists of three key types:
- Class 1 (Secondary): Paid on employee salaries above the Secondary Threshold.
- Class 1A: Paid on employee benefits such as company cars or health insurance.
- Class 1B: Paid under PAYE Settlement Agreements for irregular or minor benefits and expenses.
Understanding how and when these contributions apply is critical, especially when rates and thresholds change.
What are the Updated NI Rates and Thresholds for Employers in 2025/26?
For the 2025/26 tax year, businesses in the UK face increased Employer NI obligations, primarily due to two changes:
- The main rate for Employer’s Class 1 NI rose from 13.8% to 15%
- The Secondary Threshold, the point after which employers begin paying NI, was lowered from £9,100 to £5,000 per year
This means businesses are now paying more NI, and on more of an employee’s earnings.
Employer NI Rate & Thresholds Table (2025/26):
| NI Category | Rate | Threshold |
| Class 1 (Secondary) | 15% | On earnings above £5,000 annually |
| Class 1A & 1B | 15% | On employee benefits & lump sums |
| Employment Allowance | Up to £10,500 | For eligible employers |
If you employ someone earning £30,000 annually, you’re now paying 15% NI on £25,000 (instead of £20,900 last year), significantly increasing your overall cost per employee.
How Do Class 1A and 1B NI Contributions Apply to Benefits and Expenses?
Employers aren’t just taxed on wages, they also pay National Insurance on non-cash benefits and certain expenses. These fall under Class 1A and Class 1B contributions.
Class 1A: For Taxable Benefits
This class covers benefits in kind (BiKs), such as:
- Company vehicles
- Private medical insurance
- Gym memberships
- Employer-paid relocation costs
- Redundancy payments over £30,000
These are taxed at the 15% Class 1A NI rate, calculated annually and reported via P11D and P11D(b) forms. The submission deadline typically falls in July following the tax year.
Class 1B: For PAYE Settlement Agreements (PSAs)
If an employer opts to cover tax and NI on small or irregular employee benefits (e.g. staff gifts or parties), they can use a PSA. Contributions under Class 1B are also taxed at 15% and paid annually.
Understanding how to manage these liabilities helps employers avoid costly surprises and remain compliant with HMRC rules.
What is the Employment Allowance, and How Has It Changed?
One of the few pieces of good news in the 2025/26 NI changes is the increased Employment Allowance, which offers eligible businesses up to £10,500 off their annual Employer’s NI bill. This is a jump from the previous £5,000.
To be eligible, your business must:
- Employ at least one person paid above the Secondary Threshold
- Not have exceeded the de minimis state aid limit (for certain sectors)
- Not already be claiming the allowance through another connected company
With the removal of the previous £100,000 eligibility cap, more medium-sized businesses now qualify, further expanding access to NI relief.
Claiming the allowance is usually handled automatically through your payroll software. Once claimed, your Employer’s NI bill is reduced until the full allowance is used or the tax year ends.
Which NI Category Letters Apply to Employers and What Do They Mean?
NI category letters help determine the correct rate of National Insurance for different employee groups. As an employer, knowing which category applies to your employees ensures accurate deductions and contributions.
Key NI Categories for Employers:
| Category | Description | Employer Rate |
| A | Standard employees | 15% |
| M | Employees under 21 | 0% (up to £967/week) |
| H | Apprentices under 25 | 0% (up to £967/week) |
| V | Armed forces veterans | 0% (up to £967/week) |
| Z | Employees under 21 (with deferred NI) | 0% |
| B, C, E | Reduced rate groups (widows, married women, pensioners) | 15% or 0%, depending on earnings |
Employees in special categories may qualify for reduced or deferred NI contributions, especially younger workers, apprentices, or veterans, offering potential savings for employers.
Accurate use of category letters is vital during payroll setup and reduces the risk of non-compliance penalties.
How Do These NI Changes Impact Small and Medium-Sized Employers?
Small and medium-sized enterprises (SMEs) are often most affected by rising employment taxes. The 1.2% increase in Employer’s NI rate, coupled with a lower threshold, represents a significant cost hike, especially for companies with tight margins or expanding teams.
Let’s break this down:
- A business with 10 employees earning £30,000/year each will now pay £1,275 more per employee in NI compared to 2024/25
- Total additional cost: £12,750 annually
However, SMEs may benefit from the increased Employment Allowance, which can reduce total NI liability by £10,500, bringing some relief. Employers hiring under-21s, apprentices, or veterans can also access reduced NI categories, which helps offset the cost burden.
What Tools and Software Can Help You Stay Compliant?
Ensuring compliance with these changes is essential. Errors in NI calculation can lead to overpayments, underpayments, and potential fines. Thankfully, payroll technology can help automate and simplify compliance.
Benefits of Payroll Software for NI Management:
- Automatically updates thresholds and rates
- Applies correct category letters per employee
- Tracks Employment Allowance usage
- Generates P11D, P11D(b), and PSA submissions
- Real-time reporting to HMRC (RTI compliant)
Popular payroll systems in the UK market now integrate real-time calculations, making it easier to stay up to date with all NI and PAYE changes throughout the year.
If you’re manually processing payroll, it’s advisable to move to automated systems or consult a qualified payroll provider to avoid errors.
What Are Some Legitimate Ways to Reduce Employer NI Liabilities?
While NI contributions are a legal requirement, businesses do have strategic options to reduce liabilities within HMRC rules:
Methods to Reduce NI Costs:
- Claim Employment Allowance: Save up to £10,500 annually.
- Use salary sacrifice schemes: Redirect pay to pensions, childcare, or cycle-to-work schemes.
- Hire eligible employees: Apprentices under 25, employees under 21, and veterans attract reduced or 0% employer NI (within thresholds).
- Optimise benefits packages: Review benefit structures to minimise Class 1A and 1B liabilities.
- Reinvest in training: Leverage apprentice levy or grants to offset staff costs.
These approaches are not only cost-effective but can also support long-term workforce development and staff retention.
What Should UK Employers Do Now to Prepare for NI Changes in 2025/26?
Preparation is key. With these new rules already in effect, businesses should act now to ensure they remain compliant and cost-effective.
Employer Action Plan
- Review payroll system: Ensure NI rates and thresholds are updated
- Audit employee category letters: Verify accurate classification
- Assess benefits: Identify taxable benefits and reporting needs
- Claim Employment Allowance: File or enable this through payroll
- Forecast staff cost impacts: Adjust budgets and hiring plans accordingly
NI Cost Comparison Example
| Employee Salary | NI Liability (2024/25) | NI Liability (2025/26) | Difference |
| £30,000 | £2,898 (13.8% over £9,100) | £3,750 (15% over £5,000) | +£852 |
This highlights the need for proactive planning to manage the rising cost of employment in 2025/26.
Conclusion
The 2025/26 changes to Employer’s National Insurance represent one of the most significant cost increases for UK businesses in recent years. With a higher contribution rate and a lowered threshold, employers are paying more NI on more of each employee’s salary.
That said, opportunities still exist for smart employers. Leveraging the new £10,500 Employment Allowance, hiring under NI-exempt categories, and optimising benefits can all help reduce your NI bill.
Staying compliant starts with knowledge, and now that you’re up to speed, it’s time to review your payroll, adjust your budgets, and make the necessary updates to protect your business’s bottom line.
Frequently Asked Questions
How do I calculate Employers’ NI for a £30,000 salary in 2025/26?
Employers pay 15% on earnings above £5,000, resulting in £3,750 Employer NI on a £30,000 salary.
Can I still claim Employment Allowance if I only employ one person?
Yes, you can claim Employment Allowance if you meet the eligibility criteria and the employee earns above the Secondary Threshold.
What’s the difference between Class 1, 1A and 1B NI contributions?
Class 1 applies to wages, Class 1A to benefits in kind, and Class 1B to minor benefits reported through a PSA.
Are directors treated differently under NI rules?
Yes, directors’ NI is usually calculated annually rather than per pay period.
What benefits trigger Class 1A NI contributions?
Company cars, private medical insurance, and certain termination payments attract Class 1A NI.
Do charities and non-profits pay Employers’ NI?
Yes, although many can claim Employment Allowance and access specific reliefs.
Can NI be reduced by offering pension contributions?
Yes, salary sacrifice pension schemes can reduce both employer and employee NI liabilities.
