Quick Answer
From 6 April 2025, employer National Insurance jumped from 13.8% to 15% and the threshold dropped from £9,100 to £5,000. For a heating engineer on £40k, that is an extra £986 a year straight out of your pocket. Five engineers? Nearly £5,000 gone. But the Employment Allowance also doubled to £10,500, which could wipe out most or all of the damage if you qualify. This article breaks down the real numbers and shows you exactly how to absorb the hit.
Table of Contents
- What changed on 6 April 2025
- What it costs you per engineer
- How it hits a team of five
- Key dates and deadlines
- Employment Allowance: your first line of defence
- Salary sacrifice: the second lever
- Repricing to protect your margins
- What the industry is saying
- Videos worth watching
- Frequently asked questions
- My verdict
What changed on 6 April 2025
Here is the thing. The Chancellor did not just nudge one dial. She moved three at the same time, and two of them cost you money.
Change 1: The rate went up. Employer National Insurance contributions (NICs) rose from 13.8% to 15%. That 1.2 percentage point jump applies to every pound of salary above the secondary threshold.
Change 2: The threshold dropped. The secondary threshold fell from £9,100 to £5,000 per employee per year. That means you start paying NICs on a bigger chunk of each person's wages. This is the bit that really stings, because it hits lower-paid staff hardest in percentage terms.
Change 3: Employment Allowance doubled. The annual allowance jumped from £5,000 to £10,500, and the old £100,000 eligibility cap was scrapped. More on this in a moment, because for smaller firms it changes everything.
Rate: 13.8% → 15%. Threshold: £9,100 → £5,000. Employment Allowance: £5,000 → £10,500. All effective from 6 April 2025.
Let us face it, when you saw the headlines last October you probably thought "here we go again." Another tax grab dressed up as investment. But once you strip away the politics and look at your actual payroll, the picture is more nuanced than the papers made out. Some of you will pay more. Some of you will actually pay less. And a good chunk of you will break roughly even, if you take the right steps.
What it costs you per engineer
I call a spade a spade, so here are the actual numbers. No rounding, no fudging.
The formula is simple. You take the employee's annual salary, subtract the secondary threshold, and multiply by the NI rate. Under the old rules the threshold was £9,100 and the rate was 13.8%. Under the new rules it is £5,000 and 15%.
| Annual salary | Old NI (13.8%, £9,100 threshold) | New NI (15%, £5,000 threshold) | Annual increase | Monthly increase |
|---|---|---|---|---|
| £25,000 | £2,194 | £3,000 | £806 | £67 |
| £30,000 | £2,884 | £3,750 | £866 | £72 |
| £35,000 | £3,574 | £4,500 | £926 | £77 |
| £40,000 | £4,264 | £5,250 | £986 | £82 |
| £45,000 | £4,954 | £6,000 | £1,046 | £87 |
| £50,000 | £5,644 | £6,750 | £1,106 | £92 |
Look at the £40,000 row. That is roughly the average salary for a plumbing and heating engineer in 2026, give or take a few hundred depending on your region. An extra £986 a year does not sound catastrophic on its own. But it is not on its own, is it? You have got the National Living Wage increase, pension auto-enrolment costs, and materials that refuse to come down. It all stacks.
The threshold drop is the sneaky one. Under the old system, you paid nothing on the first £9,100 of each employee's salary. Now you start paying at £5,000. That extra £4,100 of taxable earnings per person is worth £615 a year at the new 15% rate, before you even get to the rate increase itself.
How it hits a team of five
Most trades businesses I work with have somewhere between three and eight people on the books. So let us scale these numbers up to see the real damage.
| Team of 5 engineers at | Old total NI | New total NI | Annual increase |
|---|---|---|---|
| £30,000 each | £14,420 | £18,750 | £4,330 |
| £35,000 each | £17,870 | £22,500 | £4,630 |
| £40,000 each | £21,320 | £26,250 | £4,930 |
A team of five on £35k each costs you an extra £4,630 a year. That is a van payment. That is a quarter of an apprentice's salary. It is not nothing.
And if you are running eight or ten engineers? Double those numbers. You are looking at £8,000 to £10,000 extra per year just in employer NI. Sound familiar? I hear this from business owners every week. The margins were already tight, and now they have got another line item eating into profit.
The National Living Wage rose to £12.21 per hour from April 2025 (up from £11.44). Combined with the NI hike, the OBR estimates overall payroll costs have risen by roughly 2% across the board. If you have not repriced since 2024, you are absorbing all of this.
Key dates and deadlines
Autumn Budget announcement
Chancellor Rachel Reeves confirms employer NI rate increase to 15%, threshold reduction to £5,000, and Employment Allowance rise to £10,500.
All three changes take effect
New rate (15%), new threshold (£5,000), and new Employment Allowance (£10,500) all kick in from the start of the 2025/26 tax year.
First full tax year under new rates
2025/26 employer NI bills finalised. If you have not adjusted your pricing or claimed Employment Allowance, the full cost hits your accounts.
Secondary threshold review
The £5,000 threshold is frozen until April 2028, after which it becomes CPI-linked and should start rising with inflation.
Salary sacrifice pension change
From April 2029, employer NI becomes payable on salary sacrifice pension contributions exceeding £2,000 per employee. This reduces the NI savings from salary sacrifice schemes.
Employment Allowance: your first line of defence
Here is where the government gave with one hand after taking with the other. The Employment Allowance jumped from £5,000 to £10,500, and the old rule that excluded businesses with an NI bill over £100,000 was scrapped entirely.
What does that mean in practice? The Employment Allowance reduces your employer NI bill pound for pound. If your total employer NI liability for the year is £10,500 or less, you pay nothing. Zero. According to HMRC's own modelling, around 865,000 employers will pay no employer NIC at all under the new system. More than half of all employers will see no change or actually pay less than before. For more detail on how to manage your tax obligations, check our guide on MTD Phase 2 requirements and penalties.
Let us run the numbers for a typical small trades firm. A sole trader with three engineers on £35k each has a total employer NI bill of £13,500 under the new rates (3 x £4,500). Subtract the £10,500 Employment Allowance and they actually pay £3,000. Under the old system with the old allowance, they would have paid £5,722 (£10,722 minus £5,000). That is a saving of £2,722.
You claim Employment Allowance through your payroll software or HMRC's Basic PAYE Tools. You need to claim it every tax year; it does not roll over automatically. If you use an accountant for payroll, ask them to confirm it has been applied for 2025/26. The only businesses that cannot claim are those where the sole employee is also a director (single-director companies), public bodies, and businesses carrying out more than half their work in the public sector.
The key question is: how many employees do you have? If you have got four or fewer people on modest salaries, the increased allowance probably covers the entire increase and then some. If you have got eight or more, the allowance helps but does not cover it all. You need the other levers too.
Quick eligibility check
You qualify for Employment Allowance if you meet all of these:
- You are a business or charity (not a public body)
- Your employer NI bill was under £100,000 in the previous tax year (this cap has been removed from 2025/26, so almost everyone qualifies now)
- You have at least one employee who is not a director, OR you have two or more directors on the payroll
- Less than half your work is in the public sector
Salary sacrifice: the second lever
Salary sacrifice is one of those things that sounds complicated but is actually dead simple once you get your head around it.
Here is how it works. Instead of paying an employee their full salary and then both of you paying NI on it, the employee agrees to reduce their gross salary by a set amount. That amount goes straight into their pension. Because the gross salary is lower, you pay less employer NI on it. The employee pays less employee NI and income tax too. Everyone wins.
At the new 15% rate, every £1,000 an employee sacrifices into their pension saves you £150 in employer NI. An employee sacrificing £200 a month (£2,400 a year) saves you £360 per person per year. Across five engineers, that is £1,800 a year back in your pocket.
And the employee is not losing out. Their take-home pay barely changes because they are also saving on their own NI (8%) and income tax (20% for basic rate). A £200 monthly sacrifice might only reduce take-home pay by around £120, while putting £200 into their pension. It is one of the few things in tax where everybody benefits.
From April 2029, employer NI will become payable on salary sacrifice pension contributions that exceed £2,000 per employee per year. That means the NI saving above £2,000 disappears. Set up your scheme now to lock in three full years of maximum benefit before the rules change. Contributions up to £2,000 per employee will still be NI-free after 2029.
Setting up salary sacrifice
You do not need a fancy HR department. Most modern payroll software handles salary sacrifice. You need a simple written agreement with each employee confirming the salary reduction and pension contribution. Your pension provider can usually supply a template. The key rules: you cannot sacrifice below the National Minimum Wage, and the employee needs to understand what they are agreeing to. A ten-minute conversation and a one-page form. That is it. If you employ subcontractors, also review the Construction Industry Scheme rules to ensure you are handling their tax obligations correctly.
Repricing to protect your margins
Let us cut to the chase. If your prices have not gone up since before April 2025, you are taking a pay cut. Your costs went up. Your prices did not. That margin has to come from somewhere, and nine times out of ten it comes from your own pocket.
I have written extensively about the nine drivers of profit and how they apply to trades businesses. Employer NI sits squarely in the "cost of labour" driver. If that cost goes up and you do not adjust your pricing, your profit margin shrinks. Simple as that.
Here is a practical way to think about it. If your five engineers on £35k each cost you an extra £4,630 a year in NI, and you complete roughly 1,200 jobs a year, that is about £3.86 per job. Most customers will not even notice a £4 increase on a service call. But if you eat it on every single job, that is £4,630 you have given away.
How to communicate the increase
You do not need to announce "we are raising prices because of NI." Just review your rates as part of your normal annual pricing cycle. If you do not have one, start one. Every April, review your labour rate, your materials markup, and your overhead recovery rate. Factor in all cost increases, not just NI. Present it as your standard rate for the year. Customers expect prices to go up. What they do not like is surprises halfway through a project.
For fixed-price contracts, build a contingency into your quotes now. A 2-3% buffer on labour costs covers the NI increase and gives you room for wage inflation too.
What the industry is saying
Videos worth watching
Chancellor confirms hike in employers' national insurance
Sky News
What could an employer national insurance hike mean for business?
Sky News
Autumn Budget 2024: Employer National Insurance Increase
AAB
UK Business Tax Hike: Are You Ready For The NI Increase in April 2025?
James Murray Finance
Employer NIC rate increase from 6th April 2025
A&C Chartered Accountants
National Insurance Increase: What You Need To Know
Accountants Advisory Group
NI and Minimum Wage Impact on Employers UK Budget April 2025
Bloomfield Analysis
UK Budget 2025: Employer NI Rise, What to Expect and Prepare
Couch on the Couch
What is Employment Allowance? Explained in Simple Language (2025)
Filings Center Official UK
Employment Allowance for UK Company Directors in 2025
Spartan Accounting Group Ltd
How does salary sacrifice save employers money?
Penfold Pensions
The True Cost of Hiring: What Employers Forget to Budget For
Eclat Accountancy Ltd
Frequently asked questions
No. Employer NI only applies to employees on your payroll. Subcontractors under CIS are self-employed, so you do not pay employer NI on their payments. You still need to make CIS deductions as normal, but the NI increase does not affect those costs.
Not directly. Employer NI is only payable on employees' wages. If you have no employees, your NI bill stays the same. But if you are thinking about hiring your first person, factor in the new 15% rate from day one.
It depends. If you are the only employee and director, you cannot claim it. If you have at least one other employee on the payroll (even part-time), or if you have two or more directors, you can. The £100,000 eligibility cap has been removed, so most limited companies with staff now qualify.
Nobody knows for certain. The government has committed to not raising employee NI or income tax during this Parliament, but employer NI was not covered by that promise. The secondary threshold is frozen at £5,000 until April 2028, then becomes CPI-linked. I would not bank on it going down.
On paper, yes, because you avoid employer NI entirely. But HMRC is watching. If someone works regular hours, uses your tools, and only works for you, they are an employee in everything but name. Getting caught using false self-employment will cost you far more than the NI saving. Get proper IR35 advice before going down that road.
Speak to your pension provider first. Most workplace pension schemes support salary sacrifice. You need a written agreement with each employee, which your pension provider or accountant can template. Your payroll software then processes the reduced salary and higher pension contribution automatically. The whole setup usually takes a couple of weeks.
Yes. Apprentices are employees, so their wages count towards your employer NI bill, and that bill can be offset by Employment Allowance. There is also a separate relief that applies throughout the apprenticeship while the apprentice is under 25, which means you may pay zero employer NI on their wages up to a certain threshold, on top of the Employment Allowance.
My verdict
The employer NI increase is real and it stings. But it is not the catastrophe the headlines suggested. If you are a small firm with four or fewer employees, the doubled Employment Allowance probably makes you better off than before. If you are bigger, you need to pull two or three levers: claim the allowance, set up salary sacrifice, and reprice your work to reflect your actual costs. The businesses that get hurt are the ones that do nothing and hope the numbers sort themselves out. They will not. Do the maths, make the changes, and move on. That is working on your business, not just in it.
