As announced in Chancellor’s Rachel Reeves’ Autumn Budget statement, the rate of employer’s national insurance contributions (NICs) will increase to 15% from 6 April, up by 1.2% from 13.8%. Simultaneously, the secondary threshold at which those contributions start to become payable is almost halved, down from £9,100 to £5,000. The combined effect of these two measures means that, for each employee on median earnings, the employer’s NICs are set to increase by £960 per year.
To partly offset the additional cost for employers, Employment Allowance for 2025-26 is more than doubling, from £5,000 to £10,500 per annum. There is also a welcome change for large employers which will qualify for the first time, because the current restriction, which limits the relief to employers whose total NICs liability was less than £100,000 in the previous tax year, is removed.
The net result of these increases and corresponding allowances is that employers of five or fewer employees on median earnings are likely to pay slightly less NICs overall, while employers of six or more employees will pay significantly more. Overall, the combined effect of these changes is expected to raise an additional £25 billion for the government.
Meanwhile, the lower earnings limit for employees is to be increased to £125 per week from £123, and the corresponding small profits threshold for the self-employed rises to £6,845 per annum from £6,725. These rises are in line with the 1.7% Consumer Prices Index to September 2024, but will have minimal practical impact because contributions are not physically payable until the primary threshold or lower profits limit of £12,570 per annum is reached, neither of which are changing.
Nevertheless, while there has been no change to either the rate or physical payment thresholds for employees and no manifesto pledges have been broken, the operation of fiscal drag allows the government to collect more in both income tax and NICs each year as wages increase and more employees are sucked into the net.
A very small number of individuals whose earnings currently exceed the lower earnings limit or small profits threshold but will not do so from April, when the threshold is increased, could be adversely affected, because they will no longer be credited with NICs and may need to consider paying voluntary NICs to ensure they have a qualifying year for state pensions and benefits.
Paul Robbins is an associate director of tax at Croner-i
