Now that the festive season is behind us, it’s time to look forward to the changes in the upcoming tax year. With only a few months to go, it’s imperative that businesses start to prepare themselves for change – and the biggest change on the horizon is Employer National Insurance contributions and Employment Allowance changes announced at the Autumn Budget 2024.

Proving to be continuously controversial, these changes will affect all businesses – from self-employed directors to multi-billion-pound companies with thousands of employees. Employers will soon have to pay increased National Insurance (NICs) but will benefit from the changes to Employment Allowance.

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In summary, the changes that will take effect from 6 April 2025 are:

  • a reduction in the NICs secondary threshold from £9,100 a year to £5,000 a year
  • an increase to the rate of secondary Class 1 NICs from 13.8% to 15%
  • an increase in the Employment Allowance from £5,000 to £10,500
  • the removal of the Employment Allowance £100,000 eligibility threshold

National Insurance and Directors

With a reduction in NICs secondary threshold to £5,000 a year, directors who pay themselves a base salary and the remaining income in dividends will have to revisit how much they pay themselves so that they don’t breach the threshold for National Insurance. This is where a payroll bureau can provide advice and guidance on the new limits and how income from salary versus dividends will change.

It is worth noting that even if you are not paying any tax or NI to HMRC, it is still important to register for PAYE so that you can apply for state benefits going forwards. Your payroll provider can also help with this, ensuring that you don’t miss out on essential income.

Employment Allowance

Alongside the changes to NICs secondary threshold, comes news that the Employment Allowance will increase from £5,000 to £10,500 and that the £100,000 eligibility threshold has been scrapped. This means all businesses that pays above the NICs secondary threshold for two or more employees, regardless of their size, should now apply for this allowance. This is something that we will be automatically implementing for Menzies clients.

It is worth noting here that all other eligibility requirements remain unchanged. To be eligible you must be a registered employer, be either a business, a charity with employees or a have more than two directors earning over the secondary threshold for class 1 National insurance.

You cannot claim employment allowance if you are a public body, you carry out more than 50% of your work in the public sector, or your company has just one director and that director is the only employee liable for secondary class 1 national insurance.

It is also worth noting that employees whose earnings are within IR35 off payroll working rules and employees employed for personal household or domestic work (unless they are care or support workers) cannot be included in your employment allowance claim.


Bringing in the 25/26 tax year

The final and most pressing change for the 25/26 tax year is that the rate of secondary class NICs will increase from 13.8% to 15% from 6 April. This means that employers will see their PAYE payments increase and will need to make sure they are accurate going forward.

If you would like to discuss any of these upcoming changes and how they will affect your business or income, contact us.

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Senior Payroll Manager

Sara Every

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