New tax year: how to help your clients manage the Employer NI rise

We’re a few weeks into the new tax year, and for many small businesses, the effects of recent fiscal changes are starting to take off. Employer National Insurance (NI) has risen from 13.8% to 15%, and the secondary threshold has dropped to £5,000, leading to ballooning payroll costs. Coupled with increases in National Minimum and Living Wage rates, these developments are sending employment expenses sky-high, presenting significant challenges for business owners. 

That’s where you come in. As an accountant or bookkeeper, you’re in the best position to help your clients understand the impact and take practical steps to stay on top of their finances. Here’s an overview of what’s changed and how you can support your clients through it. 

Who is likely to be affected?

While almost all employers will feel some impact from NI changes, some sectors are likely to be hit harder than others. These include:

• Retail, hospitality and care - where wages tend to be lower and headcounts higher. 
• Startups and micro-businesses - particularly those with growing teams or hiring their first employees.
• Apprenticeship schemes - where increased costs could make some businesses rethink their programmes. However, employers don’t pay Employer NI on wages paid to apprentices under the age of 25 who earn under £50,270. 

The changes mean employers are now paying NI on a larger chunk of each employee’s earnings - and starting from a much lower salary level. So even small increases in headcount or wages could lead to noticeably higher costs.

Review payroll

Even if salaries haven’t changed, the cost of employing someone has gone up. For businesses with tight margins or growing teams, that could create pressure on cashflow. 

According to the Office for Budget Responsibility (OBR), these changes are expected to increase payroll costs by around 2%. This could lead employers to absorb 40% of the extra cost and pass on 60% through higher prices or lower wages.

You can use your accounting software (like FreeAgent) to run payroll reports and assess the impact. And if your clients are directors of their own limited company, a smart salary strategy can still make a real difference. Emily Coltman FCA, Chief Accountant at FreeAgent explains: “The most efficient salary for single director companies may still be £12,570, when you factor in Corporation Tax and take-home pay - even with the higher Employer NI. 

“That said, it’s usually best not to reduce the salary to below the new £5,000 threshold to avoid paying any NI. The Employer NI threshold is lower than the Lower Earnings Limit for Employee NI, which is £6,500 in 2025/26, and if you earn less than this limit, the year won’t count as one of your qualifying years for State Pension - meaning that you could receive less than the full State Pension in retirement. If the company makes a profit of more than £50,000, paying a higher salary may be more efficient, but please speak to your own accountant for further guidance specific to your income and circumstances.”

Salary sacrifice

Salary sacrifice schemes could also be a positive option. These arrangements allow employees to exchange part of their salary for a non-cash benefit, meaning a lower taxable salary and, in turn, lower NI contributions for both employee and employer.

They’re especially useful for clients with employees earning above the secondary threshold, and they’re not just for high earners. When structured correctly, even small businesses can benefit.

Rethinking workforce structure

Some clients might need to make changes to how their team is set up, especially if they’re struggling with rising wages and NI costs. Here are a few suggestions you could discuss with them:

• Offer part-time or flexible roles to keep more salaries below the new threshold. 
• Use freelancers or contractors where appropriate, as they handle their own tax and NI, but do beware of IR35.
• Review non-core functions (like IT or HR) that could be outsourced cost-effectively. 

These changes won’t be right for every business, but in some cases, they could create enough breathing space to manage costs more comfortably.  

Make the most of the Employment Allowance

There’s a good bit of news among the changes. The Employment Allowance, which helps employers reduce their NIC liability, has risen from £5,000 to £10,500. This allowance reduces your clients’ annual Employer NI bill, and the increased limit could provide a much-needed buffer against rising costs.

Even better, the old eligibility threshold - which excluded businesses with an Employer NI liability over £100,000 in the previous tax year - has now been scrapped. This means more businesses than ever can claim the allowance. To qualify, your client must have at least two employees, one of whom earns above the secondary threshold - single-director sole-employee companies still do not qualify.

Government support and tax-free benefits

If your clients want to support their team without adding to their Employer NI bill, tax-free benefits are a great place to start. These are perks that don’t count towards taxable income or NI contributions, so everyone wins.

Popular options include:

• Cycle to Work schemes
• Electric vehicle leasing via salary sacrifice
• Childcare vouchers

These kinds of benefits can improve staff wellbeing and retention, while keeping payroll costs under control.

Small business grants

Business grants and other types of financial support are available to startups and small businesses across the UK. While business loans have to be repaid, there is usually no requirement to repay a grant, as long as it’s used for its intended purpose. 

Your clients might already be doing work that would qualify for a grant. For example, if their business is contributing to growing the local economy or proactively reducing carbon emissions, they could already be eligible. This could provide a healthy boost to cashflow in the immediate term. 

The government also has a finance support tool to help businesses find loans and grants. If your client’s business is based in Scotland, Wales or Northern Ireland, it’s also worth checking to see if any grants are available from the relevant devolved government. 

Tax relief

When budgets are under pressure, every allowable expense helps. You can share FreeAgent’s guide to allowable expenses for small businesses with your clients, so they can find out what expenses and costs they can claim tax relief on (including working from home expenses, travel and hotel costs, and mileage). 

Other examples of tax relief include:

• Small business rate relief
• Annual Investment Allowance
• Charitable donations 

Reduce overhead costs

Your clients can potentially cut overheads other than payroll costs, thereby having more money to spare for the increased cost of employing staff, by:

• Going paperless - digitalise their business to save money on business cards, marketing materials and other printed collateral. 
• Reassessing the workplace - if your client rents office space or pays to use a co-working space, they might want to try shopping around for a less expensive alternative. It may even be time to think carefully about whether they need a rented office at all. 
• Negotiate with suppliers - clients should plan for what they want to pay and how the terms will be beneficial for both parties. If they’ve paid them promptly in the past, they may be better placed now to ask for a better price or more time to pay.

Save money on accounting software

Finally, there’s another way small businesses can save money! FreeAgent is free for clients with a NatWest, Royal Bank of Scotland, or Ulster Bank business account (for as long as they retain their account) or a free Mettle account (provided they make Mettle their primary business account in FreeAgent). Optional paid-for features are available for Mettle and FreeAgent.