If you run a small business in the UK, the 2025/26 tax year brings one of the most important shifts in National Insurance (NI) in recent years.

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And not in a “nice little tweak” kind of way.

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We’re talking:

• Higher employer costs

• Lower thresholds

• Bigger (but helpful) allowances

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In this guide, we break down exactly what’s changed, what it means for your payroll, and how to stay ahead of it.

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Quick Snapshot: 2025/26 National Insurance Changes

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Let’s start with the headlines:

• Employer NI rate: increased to 15% (up from 13.8%)

• Employer threshold (Secondary Threshold): reduced to £5,000 per year

• Employment Allowance: increased to £10,500

• Employee NI rates: remain at 8% and 2%

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Translation: employing staff just got more expensive — but there’s a partial offset.

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National Insurance Thresholds for 2025/26

Understanding thresholds is key because this is where the real cost impact sits.

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Employee thresholds

• Primary Threshold (start paying NI): £12,570/year

• Upper Earnings Limit: £50,270/year

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Employees pay:

• 8% between £12,570 and £50,270

• 2% above £50,270

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Employer thresholds (this is the big one)

• Secondary Threshold (when employers start paying NI):

£5,000/year (DOWN from £9,100)

• Employer NI rate:

15% on earnings above this threshold

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Why this matters

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This change alone means: You now start paying employer NI much earlier in an employee’s salary. Even part-time employees may now trigger employer NI.

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The Real Impact on Small Businesses

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Let’s be blunt — this is a cost increase.

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1. Higher employment costs

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You’ll now pay:

• More NI per employee

• On a larger portion of their salary

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Example:

• Previously: NI started at £9,100

• Now: NI starts at £5,000

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That’s an extra £4,100 of salary per employee subject to NI.

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2. Margin pressure

For service-based businesses (consulting, trades, agencies):

• Payroll = your biggest cost

• NI increase = direct hit to profit

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3. Hiring decisions get tighter

You may find yourself:

• Delaying hires

• Using contractors more strategically

• Re-evaluating salary vs dividend mixes (for owner-managed businesses)

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The Good News: Employment Allowance Boost

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It’s not all pain.

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The Employment Allowance has increased significantly:

• Now: £10,500 (up from £5,000)

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What this means:

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If you qualify, you can reduce your employer NI bill by up to £10,500. For many small businesses, this will:

• Fully offset NI costs for 1–2 employees

• Reduce the overall impact of the rate increase

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Strategic Takeaways for Business Owners

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1. Review your payroll structure

• Are salaries optimised?

• Are directors taking the most tax-efficient mix?

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2. Factor NI into pricing

This is the one most businesses miss. If your costs go up: Your pricing strategy should reflect it.

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3. Use the Employment Allowance properly

• Make sure you’re claiming it

• Check eligibility (rules have been relaxed)

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4. Consider workforce structure

Depending on your setup:

• Employees vs subcontractors

• Full-time vs part-time

• Outsourcing certain roles

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Common Mistakes to Avoid

• Ignoring the lower £5,000 threshold

• Forgetting to claim Employment Allowance

• Pricing services based on outdated cost structures

• Not forecasting payroll increases

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Final Thoughts

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The 2025/26 National Insurance changes are simple on paper — but powerful in impact.

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For small businesses, the key message is this: Employment just became more expensive — but manageable with the right planning.

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If you stay proactive:

• Optimise your payroll

• Claim available reliefs

• Adjust your pricing

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You can absorb the changes without damaging profitability.

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Need Help?

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If you want us to:

• Review your payroll setup

• Optimise director remuneration

• Forecast the real cost impact

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Get in touch with us for help with the above! Info@xenithwealth.co.uk

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