Employer’s national insurance increased

Employer’s national insurance increased from 6 April 2025, and the higher cost continues to affect payroll planning in the 2026/27 tax year. If you employ staff, this change should be built into your monthly cash flow, not left until your year-end accounts.

The main employer National Insurance rate increased from 13.8% to 15%. The secondary threshold, which is the point where employers start paying Class 1 secondary National Insurance on employee earnings, also reduced from £9,100 to £5,000 a year.

That means you now pay employer National Insurance at a higher rate, and you start paying it sooner. For many UK SMEs, this combination has made the real cost of employing staff noticeably higher.

If you want practical help with payroll, tax and business planning, FHP Accounting can help you understand the numbers before they affect your cash flow.

What changed for employers?

The increase applies to employer National Insurance. It is not deducted from your employees’ wages. Your employees have their own National Insurance position, but employer National Insurance is an extra cost paid by the business.

For 2026/27, the key employer figures are:

• The main employer National Insurance rate is 15%.
• The weekly secondary threshold is £96.
• The monthly secondary threshold is £417.
• The annual secondary threshold is £5,000.
• Employment Allowance is up to £10,500 for eligible employers.
• Class 1A and Class 1B National Insurance rates are 15%.

This is why you should not look at salary costs in isolation. A £30,000 salary does not simply cost your business £30,000. You also need to factor in employer National Insurance, workplace pension contributions, holiday pay, sick pay, training, software and other employment costs.

Accurate payroll services can help you keep these figures under control and avoid unpleasant surprises.

Why the lower threshold matters

The 15% rate matters, but the lower threshold is just as important.

Before April 2025, employer National Insurance usually started once employee earnings went above £9,100 a year. Now, it starts once earnings go above £5,000 a year. This brings an extra £4,100 of annual pay per employee into the employer National Insurance calculation.

At 15%, that lower threshold alone can add up to £615 per employee each year, before you even consider the rate increase from 13.8% to 15%.

If you employ 10 people earning above the threshold, that can create an additional cost of up to £6,150 a year from the threshold change alone. For a small business, that is not a small admin detail. It can affect pricing, recruitment and profit margins.

Good bookkeepers can help you track payroll costs properly, so you can see how much is really leaving the business each month.

How Employment Allowance may help

Employment Allowance can reduce the pressure for eligible businesses and charities. It allows you to reduce your employer Class 1 National Insurance liability by up to £10,500 in the tax year.

This is a useful increase from the previous £5,000 allowance. The old rule that stopped employers from claiming if their employer Class 1 National Insurance bill was more than £100,000 in the previous tax year has also been removed from 6 April 2025.

However, not every employer can claim.

You cannot usually claim Employment Allowance if your company has only 1 employee paid above the Class 1 secondary threshold and that employee is also a director. Connected companies also need care, because only 1 company in a connected group can claim the allowance.

This is where it is worth checking the rules properly. A missed claim could cost your business money. An incorrect claim could create problems with HMRC later.

What does this mean for hiring?

The employer National Insurance increase does not mean you should stop hiring. It does mean you should calculate the full cost before making a decision.

If you are recruiting, you should budget for:

• Gross salary.
• Employer National Insurance.
• Workplace pension contributions.
• Holiday pay.
• Sick pay.
• Payroll administration.
• Software, equipment and training.
• Management time.

For example, if you employ someone on £30,000 a year, employer National Insurance for 2026/27 is worked out on £25,000 of earnings above the £5,000 secondary threshold. At 15%, that creates an employer National Insurance cost of £3,750 before any Employment Allowance is applied.

If your pricing has not changed for some time, higher employment costs could reduce your margin. This is especially relevant for service businesses where staff time is the main cost.

Using Xero bookkeeping can make it easier to monitor wages, PAYE, pensions and cash flow in one place.

What should your business review now?

This is a sensible time to review your payroll setup and wider business costs. You do not need to make rushed decisions, but you should know where you stand.

You should check:

• Whether your payroll software is using the correct 2026/27 rates and thresholds.
• Whether Employment Allowance has been claimed correctly.
• Whether your director salary remains appropriate.
• Whether pay rises have been costed properly.
• Whether pension contributions are included in your forecasts.
• Whether PAYE payments are being made on time.
• Whether your pricing still protects your profit margin.
• Whether payroll journals are posted correctly in your accounts.

This is particularly important if you employ several part-time staff. The lower secondary threshold can affect lower-paid and part-time roles more than some employers expect.

If your business is growing, an outsourced finance department can help you monitor payroll, management accounts and cash flow without building a full in-house finance team.

How it affects accounts and tax planning

Employer National Insurance is normally an allowable business expense for Corporation Tax purposes when it relates to business employment costs and is recorded correctly. But that does not remove the cash flow impact.

You still need to pay PAYE and National Insurance during the year. If payroll costs rise and income does not increase, your cash position may become tighter even if your taxable profit is lower.

That is why payroll should not be reviewed separately from your accounts. Your wage costs should tie into your annual statutory accounts, company tax returns and management reports.

For some businesses, the right response may be a pricing review. For others, it may be tighter budgeting, better credit control or more regular management accounts.

Don’t forget VAT and personal tax

Higher staff costs can affect more than payroll. VAT, Corporation Tax, PAYE and personal tax all influence how much cash stays in the business.

If you are a director-shareholder, your salary and dividend mix should also be reviewed. The right balance depends on your income, company profits, available allowances and wider tax position.

Support with VAT return services and personal tax returns can help you look at the full picture, rather than treating payroll as a separate issue.

What if you are a start-up or property business?

If you are starting a new business, the higher employer National Insurance cost should be built into your first hiring plan. It is easy to focus on the wage and forget the extra costs that come with taking on staff.

Specialist accountants for start-ups can help you set up payroll, register correctly and plan your first year with more realistic figures.

Property businesses should also pay attention. If you employ admin staff, finance staff, property managers or site support, higher payroll costs may affect profitability and management fees.

Support from landlord accountants or a property tax specialist can help you understand how payroll fits into your wider property accounts. If your company records also need attention, company secretarial services can help keep the structure organised.

Need expert accounting advice?

Employer’s national insurance increased, and the impact is still being felt by businesses across the UK. The issue is not only the 15% rate. It is the combination of the higher rate, the lower £5,000 threshold and wider pressure on wages, pensions and cash flow.

If you employ staff, now is a good time to review your payroll setup, Employment Allowance position, pricing and forecasts.

FHP Accounting can help you understand your true employment costs, keep payroll accurate and plan ahead with more confidence.

For clear advice on payroll, bookkeeping, tax and business accounts, contact FHP Accounting today.

Kellee Quigley

I lead FHP Accounting, an accountancy practice specialising in Commercial and Residential Property Accounting. Our goal is to make the administration of running property portfolios easier for landlords, managers, and investors — allowing you to focus on what you do best, while we take care of everything behind the scenes.