How the Employers’ National Insurance Rise Will Impact Your Small Business – A Real-World Example

The UK government’s recent budget announcement means significant changes for Employers’ National Insurance (ENI). For small business owners, this increase can feel like a direct hit to the bottom line. To bring this down to earth, I’ll walk through what these changes mean for my own business and offer some practical ways you can respond to this financial shift. The numbers, as always, tell a story—one that we can manage with a bit of strategy.

Real Costs to My Business

Let’s get right into it. I run a business with a team of 10 employees, each earning enough to incur ENI charges beyond the threshold. Up until now, we’ve had a helping hand in the form of the £5,000 Employment Allowance, but that’s changing. While the new budget raises this allowance to £10,500, this extra support will still leave us with a notable shortfall because of both the threshold drop and the rate hike.

Breaking down these costs, let’s see what the numbers look like:

Current ENI Costs

Right now, our ENI contributions look something like this:

• Monthly ENI: £1,512
• Annual ENI before Allowance: £18,130
• Annual ENI after Current £5,000 Allowance: £13,130

This setup is already a significant cost, even with the existing Employment Allowance.

Impact of the New Allowance

The upcoming increase in the Employment Allowance to £10,500 will help—adding an extra £5,500 in relief. But this relief will only absorb part of the additional costs triggered by the budget’s adjustments. With 10 team members, the changes to the lower threshold and the increase in the ENI rate will still mean higher contributions.

Threshold Change Costs

From April 2025, the threshold at which ENI charges begin will drop from £9,100 to £5,000. In plain terms, this means that more of each employee’s income will be subject to ENI. Here’s what this threshold change alone will cost us:

• Extra ENI per Employee: £615 annually
• Total for 10 Employees: £6,150

Rate Increase Costs

And there’s more. The ENI rate is increasing from 13.8% to 15%. To put it in real terms, this rate increase adds:

• Monthly Rate Increase: £130.92
• Annual Rate Increase: £1,571

Total Cost and Real Terms Impact

When we add everything up, this increase in ENI rates and the threshold change represents an additional £7,721 per year. With the new Employment Allowance in place, we’re left with a net increase of £2,221 in ENI.

To put it another way, our ENI costs are rising by about 10% in real terms. For a larger business, even the increased allowance will barely make a dent. For instance, a client I spoke with who employs 30 people expects an additional £13,000 in ENI costs—a 6.5% reduction in their profit margin. “Is it worth the risk of employing 30 people for such a thin margin?” they asked.

It’s understandable to have this reaction, but as business owners, we need a more forward-focused approach. We can take proactive steps to manage these costs and maintain profitability.

Three Strategies to Offset ENI Costs

Here are some strategies I’m considering to help mitigate the impact of ENI rises. They’re straightforward, proven to support cost efficiency, and can enhance employee satisfaction without increasing cash payouts.

1. Salary Sacrifice Pension Contributions
   By shifting to a salary sacrifice pension arrangement, we can lower the total income subject to ENI. This setup can be beneficial for employees too, since it increases their pension contributions without changing their take-home pay significantly.
2. Salary Sacrifice Car Schemes
   Offering low-emission or electric vehicles via a salary sacrifice scheme can also help. This arrangement not only lowers ENI but can improve employee satisfaction by providing an eco-friendly benefit. This does come with a BIK charge but it does offer great value for money.
3. Non-Cash Bonuses
   Replace cash bonuses with non-cash rewards, such as professional development opportunities or extra leave days. These kinds of incentives support retention and engagement while helping us avoid additional ENI charges. Offering extra holidays during seasonal downturns can be a great way to manage this aspect. 

While these ideas focus on offsetting ENI expenses, they also reinforce a culture of employee engagement and retention vital for any business.

Final Thoughts

The Employers’ NI increase and threshold change are going to impact budgets, particularly for small and medium-sized businesses. However, with careful planning and a few strategic shifts, it’s possible to offset some of these added costs. In business, success often boils down to adaptability: finding the simplest, most effective solutions to the challenges that come our way.

If you’re interested in discussing customised strategies to manage these changes, don’t hesitate to get in touch. There’s always a solution that careful analysis and a bit of creative thinking can reveal.

Just remember what is right for today’s tax landscape can change in the future so we all need to stay upto date with the right strategies.

If you would like to watch my YouTube video on the changes to employers NI, then you can find it here: https://youtu.be/8dit6CrFfhM?si=vqfsdVt0AV4dE8Vp