The impact of the employers’ national insurance hike on limited companies

From 6 April 2025, employers’ national insurance rates have risen from 13.8% to 15%. The ‘secondary threshold’—the salary level at which employers start paying NI—has also been cut from £9,100 to a mere £5,000.

Clearly, there will be a significant impact on employers of all sizes – the measure is expected to raise almost £24 billion for the Treasury during the 2025/26 tax year alone.

The IFS says that companies must pay an extra £900 per year per employee on median earnings.

One ray of light – for some smaller businesses – comes as an increase to the Employment Allowance. This measure will offset the first £10,500 of most businesses’ employers’ NI costs.

Unfortunately, it’s not available to one-man limited companies – and there are some other exclusions too.

In this brief guide, we look at the likely impact of the NI hike on small limited companies.

What do you pay employers’ NI on?

All employers pay Class 1 NICs on staff salaries/wages.

The hike represents an 8.7% increase in the tax rate, and the tax will apply to a larger proportion of employees’ wages.

For example:

• If an employee earns £30,000 per year, your company pays 15% NI on £25,000 – £3,750 in total.
• In the previous tax year, you’d pay 13.8% on £21,000 of the salary – £2,898.
• So, your NI bill for 2025/26 is £852 higher for this one employee.

If you pay yourself (as a director) the tax-efficient salary of £12,570 this year, your company’s NI bill will be £656.64 higher than in 2024/25 (£1,135.50 compared to £478.86).

These additional costs will quickly add up, especially for companies with multiple employees.

For many companies, however, the Employment Allowance can offset some (or all) of these costs.

How does the Employment Allowance work?

For most of our audience—smaller limited company owners—the key question is whether their company qualifies for the Employment Allowance (EA).

• If you are the sole director of your company and the only employee earning above the secondary threshold (£5,000 in 2025/26), your business can’t claim the EA.
• However, if your business has at least one other employee (including a spouse) earning above £5,000, it should qualify. This includes a part-time worker – as long as their earnings reach this threshold.

As you can see in this example:

• If you pay an employee £12,570 (the most tax-efficient salary), the employer’s NI bill is £1,135.50 (15% of the difference between £12,570 and £5,000).
• If your company claims the EA, you won’t pay anything until the combined employers’ NI bill reaches the £10,500 EA threshold.

This makes the EA a crucial tax relief for eligible small businesses – if your company is eligible!

What can you do to mitigate the effects of the NI hike?

Here are some further ways your business can mitigate the effects of the tax rise.

• Salary sacrifice arrangements allow employees to exchange a proportion of their salary for benefits such as pension contributions and cycle-to-work schemes. As their taxable salary is reduced, the company’s NI bill also reduces.
• If you’re a small company director, talk to your accountant to find the most tax-efficient way to draw down income from your company in terms of salary vs. dividends.
• If you’re a limited company contractor unable to claim the EA, you might be able to pass on some of the increased costs to your client (or agent). Unfortunately, this might be easier said than done – especially in a tough market.
• Review staff remuneration packages to balance salaries and benefits more tax-efficiently.
• Learn about NI exemptions for certain types of employees (e.g. apprentices under 25 and employees under 21).
• Delay pay rises or phase them in over time, especially for larger teams.
• Explore using freelancers or contractors for certain types of work, as you don’t pay employers’ NI on business-to-business relationships (subject to the IR35 rules).