The headline cuts to National Insurance were widely welcomed when they landed in April 2024, but the story did not end there. A year later, further National Insurance changes come into force that every employer, employee and self-employed trader needs to understand. From the employee’s viewpoint, the main Class 1 rate now sits at 8% – a full third lower than the 12% that applied as recently as December 2023. HM Treasury says 29 million workers will feel the benefit, with an average employee on £35,400 saving over £900 a year (HMRC, 2024).
While that is good news for take-home pay, April 2025 also brings a steeper 15% Employer Class 1 rate and a much lower secondary threshold of £5,000. Coupled with a tighter labour market – the Office for National Statistics puts the self-employed population at roughly 4.4 million (ONS, 2025) – the new charges will flow straight through to margins unless businesses update budgets, pricing and payroll software in good time.
We have summarised the main rules below, explained what they mean in real money, and set out practical steps you can take to keep cashflow steady. If you run payroll in-house, keep this article handy; if we manage your payroll, rest easy – the updates are already built into our systems.
The headline national insurance changes at a glance
- Employee main Class 1 rate: 8% on earnings between £12,570 and £50,270; 2% above that band.
- Employer Class 1 rate: 15% on earnings above £5,000 (secondary threshold).
- Self-employed Class 4 rate: 6% on profits between £12,570 and £50,270; 2% above that.
- Abolition of Class 2 NIC from 6 April 2024 continues.
- Small Employers’ Relief compensation rises to 108.5% (100% plus 8.5%) of statutory parental payments.
Class 1: What employees will see on their payslip
The two-point cut that took effect on 6 April 2024 has bedded in, so most employees have already felt the increase in net pay. For someone earning £30,000 the annual NIC bill has fallen from around £2,174 in 2023/24 to £1,602 in 2025/26 – a saving of £572. Those on £50,000 pay roughly £1,905 less National Insurance than they did two years ago. Because the Personal Allowance and Upper Earnings Limit remain frozen, higher earners still pay the 2% rate on income above £50,270, but the bulk of their salary is now charged at 8%. The change is automatic in RTI software, yet it is worth running a quick sensibility check on first-quarter 2025/26 payroll to make sure the 8% rate is pulling through correctly.
Employer Class 1: higher rate, lower threshold
From 6 April 2025, employers face both a higher rate and a broader base. The headline rate is up to 15%, and the secondary threshold has been cut from £9,100 to £5,000 (annual figures). In practice, that means any weekly wage above £96 now attracts employer NIC. A full-time employee on £25,000 now costs an extra £284 a year, while a worker on £40,000 costs £578 more. The Treasury estimates the measure will raise £11 billion in 2025/26.
Three pointers for employers:
- Review gross-to-net budgets: Build the 15% charge into costings for new contracts and grant-funded projects.
- Revisit salary sacrifice schemes: Pensions and approved electric car plans can reduce Class 1A liabilities.
- Employment Allowance: The allowance remains at £5,000 but no longer excludes businesses with second-hand de-minimis aid – check eligibility again.
Class 4: Lighter bills for the self-employed
The main Class 4 rate fell from 9% to 6% in April 2024 and is unchanged for 2025/26. Together with the abolition of flat rate Class 2, the average sole trader with profits of £28,000 is £650 a year better off (HMRC, 2024). The Upper Profits Limit remains frozen at £50,270, so profits above that still attract the 2% surcharge, yet the overall NIC burden on small business owners is at its lowest for a decade. Keep an eye, however, on entitlement gaps: without Class 2 contributions, access to contributory benefits such as the State Pension now depends entirely on reported profits, so prompt submission of Self Assessment returns is more important than ever.
Small Employers’ Relief: Reclaim an extra 8.5% on statutory pay
Qualifying businesses – those with less than £45,000 of NIC liability in the previous tax year – can reclaim 108.5% of statutory maternity, paternity, adoption, shared-parental and bereavement payments made from 6 April 2025. The uplift from 103% to 108.5% is designed to offset the higher employer rate and lower secondary threshold. To secure the relief, you must tick the “small employer” indicator in your payroll software before the first claim of the year. Payments reimbursed under Small Employers’ Relief do not count towards your Employment Allowance total, giving an additional cashflow buffer.
Payroll and cashflow action points
- Software updates: Check that the April 2025 patch applies the 15% employer rate and new thresholds.
- Forecasts and quotes: Refresh budgets, retainer fees and project costings to reflect higher on-costs.
- Directors’ salaries: Align monthly directors’ pay just above the secondary threshold if you want to protect profits; our tax-planning team can model the optimal split.
- Dividend timing: With the Class 4 cut now permanent, you may flex the salary-dividend mix to use the cheaper 6% band before drawing dividends.
- Self-employment records: If profits dip below £6,725 you will need to consider voluntary Class 3 contributions to keep your State Pension on track.
- Statutory payments: Update internal procedures so HR claims the full 108.5% reimbursement promptly.
Next steps for your payroll and planning
National insurance changes touch every part of the pay cycle – from quotes you issue this month to year-end P60s next spring. Taking the time now to update software, costings and cashflow forecasts will spare you rushed corrections later on. We stand ready to run a quick health-check on your payroll files or to prepare tailored projections that show exactly how the 15% employer rate and 6% Class 4 band will hit your numbers.
If you would like us to review your payroll or discuss tax-efficient remuneration, contact our team and we will arrange a call. Staying on top of national insurance changes is easier when we do the heavy lifting for you.