The Government’s latest Budget has introduced changes to employer National Insurance contributions (NICs), with measures coming into effect from April 2025 that will reshape the financial obligations of employers.

These changes, combined with a change in payroll reporting requirements by April 2026, will have a widespread impact on businesses across the UK.

The changes

Starting April 2025, the rate of employer NICs will increase from 13.8 per cent to 15 per cent.

Additionally, the threshold at which employers must begin paying NICs for each employee will fall from £9,100 to £5,000.

For many employers, this means they will begin paying NICs at a lower salary level, increasing payroll costs.

To ease the burden on small businesses, the Government has doubled the Employment Allowance from £5,000 to £10,500 and removed the £100,000 eligibility cap.

As a result, approximately 865,000 small businesses will not pay any NICs in the next financial year.

Further changes are expected by April 2026, when payroll software will become mandatory for reporting benefits in kind.

This requirement aims to simplify the administration of Income Tax and Class 1A NICs, though it may pose an initial challenge for businesses not currently using compliant systems.

What does this mean for employers?

The increase in NIC rates and the lower threshold will disproportionately affect businesses with larger workforces or those employing lower-paid staff.

While the enhanced Employment Allowance provides significant relief for small businesses, many medium-sized and larger employers may face increased financial strain.

Umer Soomro, Tax Senior at Grunberg, says: “These changes will require businesses to carefully assess their payroll strategies and overall financial planning. For some, the additional costs could impact their ability to hire new staff or maintain current levels of employment.
“At the same time, the increase in the Employment Allowance is a lifeline for smaller businesses, particularly those that were previously excluded under the £100,000 cap.

“Employers will need to think beyond the immediate increase in costs and consider how these changes may affect their recruitment plans, staff retention strategies, and even their business models.”

Steps to prepare for the changes

Preparation is essential to managing the impact of these changes.

Umer explains: “Start by evaluating your payroll systems. The combination of higher NIC costs and the mandatory move to payroll software for reporting benefits in kind means you need to ensure your systems are compliant and efficient. Investing in digital solutions now could save time and reduce the risk of errors later.”

Regarding managing payroll costs, Umer advises: “Reassess your salary structures and benefits packages. Tax-efficient benefits, such as salary sacrifice schemes, are a practical way to reduce NIC liabilities without negatively impacting employee take-home pay. Options like pensions, childcare vouchers, or electric car schemes can make a real difference.”

Umer also stresses the importance of maximising reliefs, commenting: “The enhanced Employment Allowance can significantly offset NIC liabilities for qualifying businesses. Make sure you’re aware of the eligibility criteria and take full advantage of this increased allowance in your financial planning.”

Looking ahead to 2026 and mandatory payroll software requirements

The introduction of mandatory payroll software for reporting benefits in kind is designed to modernise and simplify tax reporting, but it will require businesses to adapt their processes.

For employers not currently using digital payroll systems, this change could involve upfront costs and training, but it may also lead to long-term efficiencies.

“By transitioning to digital payroll systems now, businesses can avoid last-minute disruption,” says Umer. “They can then take advantage of the efficiencies that automated systems bring to payroll and tax reporting.”

Our team can provide expert advice on managing increased NIC liabilities, maximising the Employment Allowance, and transitioning to mandatory payroll software.

These updates are an opportunity to refine your approach to payroll and tax management.

With our guidance, you can adapt to the new requirements while strengthening your financial foundations.

Get in touch today to learn how we can assist you.