Employer NI rise 2025: what it means for tradespeople

Introduction

From April 2025, tradespeople employing staff will see an increase in their employer National Insurance contributions. With the rate rising from 13.8% to 15%, it's important to understand what this means for your business finances and employment strategy.

What's changing in April 2025?

Two major changes in employer National Insurance (NI) will come into effect:

• The contribution rate will increase from 13.8% to 15%.
• The secondary threshold, where employer NI contributions start, will drop from £9,100 to £5,000.

These changes will increase costs for employers, particularly those paying lower wages.

Cost impact example: full-time tradesperson on £30,000

Let's break down the cost implications of these changes for a tradesperson earning £30,000 per year.

The employer NI contribution increases by £870.80 annually for a single employee, which may affect your budgeting.

Understanding the national insurance increase

The increase in the employer NI rate is part of a broader shift in taxation policy aimed at ensuring sustainable public finances. The government anticipates that these changes will generate additional revenue to support vital services. However, for tradespeople, this means adjusting payroll calculations and potentially restructuring financial plans to accommodate these additional costs.

Changes in employment allowance

The employment allowance will increase from £5,000 to £10,500. This change offers some relief for businesses. To qualify, your total NI bill must be under £100,000 in the previous tax year. This increase in allowance is designed to support small businesses and encourage employment by offsetting some of the increased costs associated with the higher NI rates.

Impact on hiring apprentices and subcontractors

These changes could influence your hiring strategy, particularly for apprentices and subcontractors. Consider these options:

• Apprentices: If employing under PAYE, the rise in employer NI can impact overall costs. Apprenticeship incentives may offset this. Consider the government's apprenticeship grant schemes which can provide financial support.
• CIS subcontractors: Employing subcontractors under the Construction Industry Scheme (CIS) can mitigate increased NI costs, as you will primarily pay their invoices, not NI contributions. This could be a more cost-effective strategy for managing workforce expenses.

For more on subcontractor deductions, visit our CIS deduction calculator.

Strategies to manage increased costs

Tradespeople might consider these strategies to handle rising NI costs:

• Prepare to pass costs: Adjusting quotes to reflect increased overheads may be necessary. This ensures that your business remains profitable while covering the additional tax burdens.
• Reduce hours or restructure pay: Consider adjusting working hours or restructuring pay to manage expenses. This may involve negotiating flexible working arrangements or performance-based pay schemes.
• Focus on subcontracting: Re-evaluate the balance between employing staff and using CIS subcontractors. Our day rate calculator can help compare costs effectively.
• Explore tax reliefs and credits: Investigate available tax reliefs that could offset some of the additional costs. The R&D tax credit, for example, could be applicable if your business involves innovative projects.

Exploring alternative employment models

With the changes in NI rates, tradespeople might explore alternative employment models. This could include employing part-time staff, using freelance workers, or exploring gig economy platforms. Each model comes with its own set of legal and financial implications, so it's important to consider these carefully and seek professional advice where necessary.

Resources

For further details on National Insurance rates, visit gov.uk and the HMRC website.

For more tools that can assist with financial planning, explore our tools page, including our invoice generator and VAT calculator.

Step-by-step: adjusting your business strategy

1. Evaluate current employment costs: Use our day rate calculator to assess current staffing costs and how they will be affected by the NI changes.
2. Consider hiring apprentices: Look into government incentives for apprenticeships to offset some of the increased NI costs.
3. Explore subcontracting: Determine if employing CIS subcontractors is more cost-effective for your business model.
4. Adjust pricing strategies: Review current pricing and consider necessary adjustments to cover increased overheads.
5. Consult with a financial advisor: Seek professional advice to explore tax reliefs and alternative business structures that could ease the financial burden.

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