The Cost of the Budget Change to NIC’s

There has been a lot of discussion around the Budget increase in Employer’s NIC of 1.2% from April 2025, but little regarding the change to the starting threshold.

The threshold change reduces the starting point for Employer’s NIC from £9,100 to £5,000 and this is going to be more significant and costly than the increased rate of NIC in many cases.

All employers will pay an extra £615 in Employer’s NIC tax for every single member of staff earning more than £9,100 PLUS an extra 1.2% on every pound of wages over £9,100.

This is nothing to do with inflation or the related increases in National Minimum Wage and National Living Wage. It’s just an additional tax charge.

The cost of the threshold shift is so great that the impact is only matched by the 1.2% rate increase when an employee’s salary is over £56,250.

For lower paid staff the impact is going to be dramatic. For example, someone working 15 hours at the 2025/26 NLW rate of £12.21 will currently incur an annual Employer’s NIC cost of £58. From April 2025, the reduction in the starting threshold to £5,000 increases the annual cost to £678 – an eleven-fold increase!

While an increase in the Employment Allowance from £5,000 to £10,500 will help mitigate the extra cost for smaller employers, those employing around 8 or more staff and directors are very likely to be worse off and so it will be important to model the changes for your specific business when planning for the future.

If you would like any help with this or any business tax issues, please feel free to get in touch with Alan Rolfe on 023 8046 1235 or email Alan Rolfe.