Published by Goodwins Business Brokers

As of April 2025, UK employers are facing a significant shift in payroll obligations due to changes in Employer National Insurance Contributions (NICs). For small business owners, especially those already managing tight profit margins, these increases present both challenges and opportunities. In this post, we break down the changes, explore strategic ways to reduce the impact, and highlight new government support designed to help small businesses stay competitive.

🔍 What Are the 2025 National Insurance Changes?

From April 2025, two key updates affect how employers pay NICs:

• Employer NIC rate has increased from 13.8% to 15%.
• The Secondary Threshold (the earnings point where NICs start) has dropped from £9,100 to £5,000 per year.

This means businesses now pay NICs on a greater portion of employee earnings — and at a higher rate.

✅ Example: For a business employing someone on the minimum wage, this change could mean an extra £770 per employee in National Insurance costs annually.

💼 Why This Matters for Small Businesses

Small business owners are particularly vulnerable to employer tax increases because they often have less buffer room in cash flow and fewer options to restructure large teams.

Some of the impacts include:

• Higher payroll taxes on low and mid-level earners
• Increased cost of hiring and retention
• Pressure on cash flow and net margins

🔧 5 Ways to Offset the Employer NIC Increase in 2025

To avoid the squeeze, small businesses can implement the following strategies:

1. Claim the Updated Employment Allowance – Now £10,500

Great news for smaller businesses: the Employment Allowance has increased to £10,500 (up from £5,000), allowing eligible employers to reduce their NIC bill.

Eligibility criteria:

• Employer NICs bill under £100,000 in the previous tax year
• Only available to businesses with more than one employee on payroll (excluding sole director setups)

👉 Make sure to opt in via your payroll software or speak to your accountant.

2. Offer Tax-Efficient Employee Benefits Through Salary Sacrifice

Salary sacrifice schemes allow employees to give up part of their salary in exchange for non-cash benefits, such as:

• Increased pension contributions
• Cycle-to-work schemes
• Electric vehicle leases

Because the employee’s gross salary is lower, both the employer and employee pay less NICs.

💡 Tip: Use this as a recruitment and retention tool while also trimming your tax liabilities.

3. Consider Outsourcing Non-Core Functions

If you’re scaling or pivoting, it might be worth reviewing your operational setup. Outsourcing tasks like admin, marketing, or IT to contractors or virtual assistants can help reduce the overall NIC burden, as you won’t be paying employer NICs on freelancers.

4. Invest in Automation & AI Tools

Cutting back on repetitive manual tasks by using software and AI tools can reduce the need for additional staff. While the upfront cost might seem high, the long-term savings in employer NICs and salaries often justify the investment.

Tools to consider:

• Accounting automation (like Xero or FreeAgent)
• CRM systems
• AI customer service bots
• Inventory and supply chain tech

5. Take Advantage of Other Updated Business Allowances

Alongside NIC changes, 2025 has also brought updates to other reliefs:

• Annual Investment Allowance (AIA) remains at £1 million, enabling 100% tax relief on qualifying capital investments like machinery and equipment.
• Full Expensing on qualifying plant and machinery continues, making it an ideal time to invest in productivity-enhancing assets.

📈 Looking Ahead: Planning for Sustainable Growth

At Goodwins Business Brokers, we work closely with small and medium-sized enterprises (SMEs) to prepare them for sale or scale. Understanding changes in the tax landscape is essential not just for staying compliant, but for protecting profitability and building enterprise value.

Whether you’re looking to sell your business in the next 12–24 months, or simply want to make smarter financial decisions, proactive NIC planning can improve your valuation.

🔗 Let’s Talk Business

If you need support navigating these changes — or want a business valuation that reflects your adjusted profit post-NIC increases — our team is here to help.