Changes from April 6, 2025 – What You Need to Know

The new tax year 2025/2026 brings significant changes that will affect both employers and directors of Limited companies. The new regulations, effective from April 6, 2025, will have a particular impact on companies where the director is the sole employee. In this article, we’ll break down the key changes and explain how they might affect your business.

Key Changes in Employer Contributions from April 2025

1. Lower Employer NI Threshold
   The threshold for paying National Insurance Contributions (NICs) will decrease from £9,100 to £5,000.
2. Increase in Employer NIC Rate
   The employer NIC rate will rise from 13.8% to 15% on earnings above £5,000 per year.
3. Increase in Employment Allowance
   The Employment Allowance limit will increase from £5,000 to £10,500 per year.
4. Higher Minimum Wage
   The new minimum hourly wage will rise from £11.44 to £12.21.

How These Changes Affect Employers

Lower National Insurance Threshold

Previously, the £9,100 threshold allowed business owners to avoid paying NICs up to this amount. Many directors would pay themselves a salary of £758 per month, avoiding both NICs and income tax.

From April 2025, however, employers will need to pay NICs on earnings above £5,000, introducing an additional tax burden for companies.

Increased Employment Costs

The rise in employer NIC from 13.8% to 15% means higher staffing costs. For small businesses, this may require adjusting employment strategies or finding ways to cut expenses elsewhere.

Implications for Directors of Limited Companies

Directors who are the sole employees of their companies do not qualify for Employment Allowance. This means they will be responsible for the full amount of employer NICs on earnings above £5,000.

Salary Strategy for Sole Directors

Optimal Salary Strategies

1. £5,000 Salary
   • Pros: No NICs or taxes.
   • Cons: This year won’t count towards your State Pension.
2. £6,504+ Salary
   • Pros: Qualifies for State Pension credits.
   • Cons: Requires paying NICs.
3. £12,570 Salary
   • Pros: Fully utilizes the tax-free personal allowance.
   • Cons: Higher NIC contributions.

Monthly Salary Breakdown

How to Avoid Additional Costs?

One solution might be hiring additional employees. If they earn more than £542 per month, the company can benefit from the increased £10,500 Employment Allowance and reduce NICs.

For Ltd companies with only one director, the best option might be a salary of £12,570 if there are other employees in the company. Otherwise, it’s crucial to tailor your salary strategy to your company’s specific needs.

Conclusion

The new regulations will significantly impact the cost of running a business in the UK. To avoid unnecessary expenses, it’s essential to plan your salary strategy ahead of time and consider alternative solutions.

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In our next article, we’ll discuss the changes affecting employers with multiple employees.

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