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From April 6, 2025, the UK government introduced a rise in the employer National Insurance (NI) rate from 13.8% to 15%, alongside a reduction in the secondary threshold from £9,100 to £5,000. These changes mark a significant shift in payroll obligations for employers, particularly for small business owners and contractor workers operating through umbrella or limited companies.
Whether you’re managing a growing SME or working as a contractor through a payroll provider, this updated NI structure will likely affect your take-home pay, hiring plans, and general business strategy.
The changes stem from the October 2024 Budget, which aimed to bolster public revenue by adjusting employer contributions. Previously, businesses only paid NI on earnings above £9,100. Now, the threshold has dropped to £5,000, and the rate has risen to 15%. This dual impact means many businesses will now pay NI on a larger portion of wages—and at a higher rate.
While intended to generate funding for public services, the practical effect for businesses is a rise in employment costs. Even modest salaries now trigger more substantial contributions.
Small businesses with tight margins will feel the squeeze most. The increase in employer contributions means some may have to reconsider plans to hire, expand, or invest in staff development. Contractors—particularly those operating through umbrella companies or limited companies—will also see a reduction in their net income unless clients or agencies adjust rates to compensate.
Contractors working through umbrella companies effectively become both employer and employee for tax purposes. That means the increased NI burden may be passed down the chain, unless agencies can negotiate higher assignment rates. Similarly, limited company directors drawing a salary may find it more tax-efficient to reassess their split between salary and dividends.
For umbrella workers, our guide on what’s new for umbrella companies in 2025/26 offers additional insights.
Let’s take a contractor earning £30,000 annually. Under the new rules, employer NI contributions on that salary will increase by approximately £950 per year. For businesses employing several staff or freelancers, the aggregate increase could represent thousands in additional payroll costs.
For some businesses, these added expenses may be balanced by higher pricing or tighter cost control. For others, particularly those in competitive markets, passing costs on may not be feasible.
There are still ways for businesses to manage the impact. One key tactic is claiming the Employment Allowance, which offers up to £5,000 in National Insurance relief for eligible businesses. While not all limited companies qualify—especially single-director firms—it can be a vital tool for those that do.
Another practical approach is using cloud accounting tools like Xero or FreeAgent, which provide real-time insights into payroll and NIC obligations. CloudAccountant.co.uk integrates these platforms into your bookkeeping workflow, helping you stay compliant while keeping a close eye on your liabilities.
You can learn more about how cloud software can support your business in our article on top accounting software tools for freelancers.
For limited company directors, now is a good time to reassess the most efficient balance between salary and dividends. Ensuring compliance with IR35 legislation while optimising tax efficiency remains a delicate but vital part of your financial planning.
Adjusting to the NI changes requires more than a one-time payroll update. Businesses should:
Review all staff salaries and employment contracts to assess where the increased burden falls
Monitor monthly NIC liabilities, especially during seasonal peaks
Factor the new rate into hiring and growth forecasts
Work with an accountant to ensure compliance and take advantage of all available reliefs
For businesses and contractors already feeling the pinch from inflation and rising operating costs, this change might feel like a setback. However, early planning and financial agility can soften the blow.
At CloudAccountant.co.uk, we specialise in supporting contractors, freelancers, and small businesses with modern, cloud-based accounting solutions. Our team understands the challenges posed by National Insurance changes and can help you plan smarter—from adjusting payroll to assessing your company structure.
We also offer unlimited online support, so you can get timely advice whenever you need it. If you’re unsure how the NI rise will impact your business, speak to us today and we’ll help you find the most efficient way forward.