With the new tax year approaching, employers and business owners must stay informed about upcoming changes to minimum wages and employers' National Insurance. These updates can have a significant financial impact on businesses of all sizes.
In this article, we will break down the key changes set to take effect from April 6, 2025, and explore how they may affect employers and employees.
What are the minimum wages for 06/04/2025 to 05/4/2026?
From April 6, 2025, the National Minimum Wage and National Living Wage will increase. Below is a breakdown of the new rates and how they compare to the previous year:
NMW | Increase | |
|---|---|---|
National Living Wage (21 and over) | £12.21 | £0.77 |
18-20 Year olds | £10.00 | £1.40 |
16-17 Year olds | £7.55 | £1.15 |
Apprentice Rate | £7.55 | £1.15 |
These increases are designed to ensure fair pay for employees while helping businesses remain competitive in the job market. However, employers must prepare for the financial implications of these changes.
What are the changes to the employer's national Insurance for 06/04/2025 to 05/04/2026?
Employers national insurance was 13.8% and started after a threshold of £9100.
This has been increased to 15%, and the threshold has been reduced to £5000.
This means if you have an employee earning £9100, the employer will now be liable to pay employers national insurance for this employee from 06/04/2025, whereas there was no employers national insurance on this employee at 05/04/2025. This means many more employees will now have been brought into employers national insurance.
Is Employment Allowance still available against the employer's national insurance?
An offset to the hike in employers' national insurance is the Employment Allowance. This is an allowance employers can deduct from their total employer national insurance charge. Up to 05/04/2025 this allowance was £5000, but this has been increased to £10500 from 06/04/2025.
This will help many small businesses who would have otherwise suffered a much higher employers national insurance charge.
Example
If an employer had 10 employees all earning £9100 each, there would have been no employers' national insurance on this up to 05/04/2025.
From 06/04/2025, the charge to employers' national insurance for these 10 employees would be £6150.00. This would be a very large fee for small employers to suffer. If the employment allowance had been left at £5000, the result of the change would have been £6150-£5000=£1150 extra cost suffered by the employer.
With the employer's allowance being increased to £10500 from 06/04/2025, the calculation would be
£6150 employers national insurance but £10500 employment allowance = still no employers national insurance to pay.
What does this mean for director-only businesses?
If the business is small, it may be the only employee on the payroll is the Director, earning £12570 a year (£1047.50 per month). Up to 05/04/2025, the employer's national insurance on this would be:
£12570 - £9100=£3470 of pay is subject to employers' national insurance
£3470 x 13.8% = £478.86
From 06/04/2025, the above example would be.
If the business is small and only has a single Director as an employee and no other relevant employees, the employer's national insurance would be:
£12570 - £5000 = £7570 of pay is subject to employers national insurance
£7570 x 15% = £1135.50
This is an increase of | £656.64 |
|---|---|
The corporation tax saving at the basic 19% would be | -124.76 |
Any loss of dividend on this amount would save tax at 8.75% | -46.54 |
The net increase in employers' national insurance for a director-only | £485.34 |
Is it still tax efficient for a director to run a payroll of £12570 as opposed to running a payroll up to the new employer's national insurance threshold of £5000?
Using the lowest rates of corporation tax of 19% (re 2025/2026)
Running a Director wage of £12570 v £5000
Director Remuneration | £12,570 | ||
|---|---|---|---|
£2,388.3 | |||
19% | 0 | 3 | |
1135.5 | |||
Total tax saving | -1252.8 |
Director Remuneration | 3 | £5000 | |
|---|---|---|---|
Corporation tax saving | 19% | £950 | -£950 |
Employers Ni | 0 | ||
Total tax saving | -£950 |
In Summary:
There is still a higher tax saving by running a director's remuneration of £12570.00.
Final Thoughts and How We Can Help
Navigating payroll changes can be challenging, especially when balancing increased wages and National Insurance contributions. However, strategic planning can help businesses adapt while maintaining profitability.
If you need assistance understanding these changes and optimising your payroll strategy, we’re here to help. Contact us today to ensure your business is fully prepared for the 2025/2026 tax year.
Stay ahead of the curve and make informed financial decisions.