Employer's NI Increase 2025: Impact on Trades

Two significant changes to employer National Insurance took effect in April 2025, both of which increase the cost of employing people in a trade business:

• The rate increased from 13.8% to 15%: employers now pay more NI on every pound of earnings above the secondary threshold.
• The secondary threshold dropped from £9,100 to £5,000 per year: the point at which employer NI kicks in is now much lower, meaning NI starts being charged on a greater portion of each employee's salary.

Together, these two changes mean that trade businesses employing staff face meaningfully higher employment costs from April 2025 onwards. The impact is felt on every member of staff: full-time electricians, plumbers, gas engineers, and admin staff alike.

The changes were announced in the Autumn Budget 2024 and are part of a broader shift in how the government funds public services through employment taxes. For trade business owners, understanding the numbers is the first step to managing them.

Alongside the rate and threshold changes, the government also increased the Employment Allowance from £5,000 to £10,500 per year from April 2025. This is the single most important offset for small trade businesses with employees.

The Employment Allowance lets eligible employers reduce their annual employer NI bill by up to £10,500. If your total employer NI liability for the year is less than £10,500, you pay nothing. The allowance covers the full bill.

Who qualifies?

• Most small and medium-sized trade businesses with employees qualify automatically.
• You are not eligible if your employer NI bill in the previous tax year exceeded £100,000: this catches larger trade businesses.
• Single-director companies with no other employees do not qualify for the Employment Allowance.
• If you pay yourself through a limited company as the sole director with no other staff, the allowance does not apply to you.

For a sole trader or small limited company with one to four employees, the increased Employment Allowance is helpful. In many cases it will partially or fully offset the additional cost from the rate and threshold changes.

The following examples are illustrative calculations based on the confirmed April 2025 changes (15% rate, £5,000 secondary threshold). Your actual figures will depend on your specific payroll, mix of part-time vs full-time staff, and other factors. Work through your own numbers with your accountant or payroll software.

Example 1: One full-time electrician on £32,000 salary

• Under old rules (13.8% on earnings above £9,100): employer NI on £22,900 = roughly £3,160 per year
• Under new rules (15% on earnings above £5,000): employer NI on £27,000 = roughly £4,050 per year
• Illustrative increase: approximately £890 per year for this employee

Example 2: Three tradespeople each on £30,000 salary

• Under old rules: employer NI on £20,900 per employee × 3 = roughly £8,650 per year total
• Under new rules: employer NI on £25,000 per employee × 3 = roughly £11,250 per year total
• Illustrative increase: approximately £2,600 per year across three employees

Effect of Employment Allowance

If the business above with three employees qualifies for the Employment Allowance (£10,500), their actual employer NI bill after the allowance would be roughly £750: compared to roughly £8,650 under the old rules. The allowance increase substantially cushions the impact for businesses in this size range.

Larger trade businesses (five or more employees) will see the benefit of the allowance spread more thinly and will feel the rate and threshold changes more acutely.

Not all workers are affected identically by the threshold change. A few categories of workers have different NI rules:

• Employees under 21: Employer NI is charged at 0% on earnings up to the upper secondary threshold (currently £50,270). This means young apprentices or junior staff cost significantly less in employer NI.
• Apprentices under 25: Also benefit from a 0% rate on earnings up to the upper secondary threshold, an important incentive for trade businesses taking on apprentices.
• Veterans (Armed Forces): Employers pay 0% employer NI in the first year of a veteran's first civilian employment above the secondary threshold.
• Freeport employees: Workers in designated Freeport tax sites have a 0% rate on earnings up to a higher secondary threshold.

If your trade business employs apprentices under 25, the employer NI exemption is a genuine saving, and it stacks with the broader zero-rate that applies to under-21s generally. When recruiting, it's worth factoring this in.

Higher employer NI does not mean your business cannot afford to employ people. But it does mean you need to account for it properly. Here are practical strategies for trade business owners:

1. Review your pricing

If employment costs have risen, the most straightforward response is to ensure your day rates and job pricing reflect your actual costs. Many trade business owners set prices without a precise calculation of their employment overhead. A one-off pricing review that factors in the updated NI cost per employed tradesperson often reveals that rates need a modest uplift.

The other side of the same coin is winning more of the work you already get quoted for, so the same wage bill carries more revenue. An office team that replies to every enquiry within the minute, day or night, chases every quote, and chases every invoice until it is paid does that without you adding another salaried hire. That is what Tradehand is for a trade business, the office staff big firms have, without hiring anyone, and at 15% NI on top of a £25k+ salary an employed office admin is now the most expensive way to cover that same work. There is no monthly fee; your office team earns 5% of the invoices it chases and collects, so if it does not collect, you do not pay.

2. Claim the Employment Allowance if you haven't already

The Employment Allowance is claimed through your payroll software or via HMRC's Basic PAYE Tools: it's not automatic. If you haven't actively claimed it, you may be leaving up to £10,500 per year unclaimed. Your accountant or payroll provider can check your eligibility and make the claim.

3. Consider the subcontracting vs employment calculation for new hires

Before taking on a new employee, it's worth doing the full cost comparison between employing and subcontracting. At the new NI rate, the employment overhead (NI, holiday pay, pension contributions, sick pay provision) adds roughly 25–30% on top of gross salary for a full-time tradesperson. That calculation should inform whether employing or subcontracting is the right model for your next growth step.

4. Maximise pension contribution timing

Employer pension contributions reduce the salary on which NI is calculated (under salary sacrifice arrangements). If your business doesn't use salary sacrifice for pension contributions, speaking to your payroll provider about this can create a modest NI saving for both employer and employee.

5. Engage an accountant if you don't already have one

With NI at 15% and payroll complexity increasing, the cost of a good small-business accountant (typically £500–£1,500 per year for a small trade business) is easily offset by avoided errors, maximised allowances, and better planning. If you're running payroll yourself via HMRC's Basic PAYE Tools, now is a sensible moment to review whether professional payroll support makes sense.

The April 2025 changes are now in effect for the full 2025/26 tax year (April 2025 to April 2026). Key practical steps for trade business owners:

• Update your payroll software: most payroll software updated automatically at the start of the new tax year, but verify your software applied the new 15% rate and £5,000 threshold. Running old figures would mean underpaying HMRC.
• Check your Employment Allowance claim is active: confirm with your payroll software or accountant that the claim is applied to the 2025/26 year. It does not roll over automatically in all payroll systems.
• Budget for the increased monthly PAYE payments, if you pay PAYE quarterly (as many smaller businesses do), factor the higher NI into your cash flow planning so the quarterly payment doesn't create a cash crunch. Our guide to managing cash flow in a trade business covers keeping enough headroom for payments like this.
• Discuss the impact with your accountant at your next review: the combined effect of NI changes, pension auto-enrolment minimums, and any minimum wage increases affects your break-even and pricing. A single clear conversation will give you an updated cost-per-employee figure.

The changes are real costs, but they are manageable for most small trade businesses: particularly those that claim the Employment Allowance and keep their pricing current with their actual employment overhead.