National Insurance Changes: what they mean for SMEs

Running a small or medium-sized business comes with its fair share of challenges, and staying on top of regulatory changes is crucial for smooth operations. Recent announcements regarding National Insurance contributions brings significant changes for employers in April 2025. These changes will affect your payroll costs and require careful attention. This guide breaks down what you need to know about these National Insurance updates, explains how they might impact your business, and offers practical steps you can take to navigate these shifts effectively. 

What National Insurance changes mean for employers

From April 2025, you’ll see a couple of key changes to how Employer National Insurance Contributions (NICs) work. Firstly, the standard rate that employers pay will increase from 13.8% to 15%. This means for every pound you pay above a certain threshold; you’ll now contribute a slightly larger amount in National Insurance.    

Secondly, the level at which you start paying these contributions, known as the secondary threshold, is being lowered significantly. It will drop from £9,100 per year to just £5,000 per year. This means you’ll start paying National Insurance on more of your employees’ earnings than before, impacting even those with lower salaries.    

On a more positive note, the government is increasing the Employment Allowance, which helps eligible employers reduce their NICs bill. This allowance is doubling from £5,000 to £10,500 per year. Importantly, the previous rule that prevented larger employers (those with a National Insurance liability over £100,000) from claiming this allowance has been removed, meaning more businesses can now benefit.    

Here’s a quick summary of the key changes in April 2025: 

• Increased Employers’ NICs Rate: From 13.8% to 15%.    

• Lower Secondary Threshold: Down from £9,100 to £5,000 per year.    

• Increased Employment Allowance: Up from £5,000 to £10,500 per year.    

• Removal of Employment Allowance Limit: More businesses can now claim.    

While the increased Employment Allowance is welcome news, especially for smaller businesses, the combination of a higher contribution rate and a much lower threshold could still lead to increased payroll costs for many SMEs.    

The impact on SMEs 

These National Insurance changes are likely to have several effects on your business. Understanding these potential impacts will help you prepare and make informed decisions. 

Higher employment costs

The most direct impact will be an increase in the overall cost of employing staff. With a higher percentage to contribute and a lower starting point for contributions, your payroll expenses are likely to rise, which could affect your profitability. Sectors with many employees earning around the new £5,000 threshold, such as hospitality and retail, might feel this impact more significantly.

Pressure on cash flow

Paying National Insurance on a larger portion of your employees’ earnings means you’ll need to allocate more funds to these payments. This could put a strain on your cash flow, especially if you operate with tight margins or limited reserves. Careful financial planning will be essential to manage these increased outgoings.

Challenges in offering competitive pay

As your employment costs rise, you might find it more challenging to offer competitive salaries or benefits packages. This could make it harder to attract and retain talented employees in a competitive job market.

Changing workforce strategies

To manage these increased costs, some SMEs might consider strategies like slowing down hiring, freezing new roles, or even reducing their workforce. Others might explore using more part-time or freelance workers or adopting flexible working models to optimise their staffing needs.

Consideration of pricing adjustments

You might need to think about whether to adjust your pricing for goods or services to help absorb these increased operational costs. However, it’s important to consider the potential impact on your competitiveness within the market.

Practical recommendations for SMEs  

While the National Insurance changes present challenges, there are proactive steps you can take to mitigate their impact and ensure your SME remains resilient. 

Review your payroll and workforce needs

Take a close look at your current payroll and identify any potential areas for efficiency. Consider if flexible working arrangements, such as part-time or job-sharing, could help with workforce costs.

Explore whether outsourcing non-core functions like payroll, HR, or IT could be a more cost-effective solution.

Conduct a thorough financial review

Analyse your current operating expenses to identify areas where you can make savings. This could involve renegotiating supplier contracts, reducing overheads like office space or utilities, or exploring other technology solutions. Efficient cash flow management will be more important than ever.

Understand and utilise the increased Employment Allowance

Make sure you are eligible for the increased Employment Allowance of £10,500 and know how to claim it. This can provide a significant offset to your increased National Insurance contributions.

Explore salary sacrifice schemes

Consider implementing or enhancing salary sacrifice schemes for benefits like pension contributions or electric vehicles. These schemes can reduce National Insurance liabilities for both you and your employees.

Communicate with your employees 

Be transparent with your team about the upcoming changes and any potential impact on the business. Explore non-cash benefits and incentives, such as additional paid time off or professional development opportunities, which can help boost morale without increasing salary costs.

Seek professional advice

Consult with an accountant to understand the specific impact of these changes on your business and to develop tailored strategies for managing them. Accountants can help you optimise your payroll, explore tax-efficient solutions, and ensure you remain compliant with all regulations.    

How we can help with National Insurance changes 

You don’t have to navigate the National Insurance changes alone. One Two One Accounts specialises in supporting SMEs like yours with their outsourced accounting services. Here’s how our accountancy solutions can help you manage these upcoming changes: 

Payroll management

We can handle all aspects of your payroll, ensuring accurate calculations and timely submissions of National Insurance contributions under the new rates and thresholds. This will save you time and ensure compliance.

Tax planning and advice

Our dedicated team can provide expert advice on how the National Insurance changes will specifically affect your business and help you identify strategies to minimise your tax liability, including maximising the benefits of the increased Employment Allowance.

Financial planning and forecasting

We can assist you with developing robust financial plans and forecasts that take into account the increased payroll costs, helping you make informed decisions about your business’s future.

Bookkeeping and accounts production

Accurate and up-to-date financial records are essential for monitoring the impact of these changes. Our efficient bookkeeping and accounts production services will provide you with a clear picture of your financial performance.

Personalised support

We pride ourselves on building strong relationships with clients and providing clear, jargon-free advice tailored to your specific business needs. We understand the challenges faced by SMEs in the North East and are committed to providing proactive and reliable support. 

Ensuring a smooth transition 

The National Insurance changes demand a strategic and forward-thinking approach from UK SMEs. Beyond mere compliance, this period presents an opportunity to refine financial processes and enhance operational efficiency. A thorough review of payroll systems, employee contracts, and budgeting forecasts is essential to accurately reflect the new financial landscape. Leveraging technology for automation and data analysis can streamline these adjustments, reducing administrative burdens and minimising potential errors. Furthermore, fostering open communication with employees about the changes ensures transparency and maintains workforce morale.  

By embracing a proactive mindset and investing in robust financial planning, SMEs can not only navigate these changes but also emerge stronger and more resilient. Don’t hesitate to seek professional guidance to ensure your business remains financially healthy and competitive.  

We are on-hand to support you and provide the expertise you need to confidently face these changes and continue to thrive.