Secondary NI threshold sinking to £5,000: a limited company director’s explainer

“What are the NI implications on a single-director contractor limited company that wants to take on a single employee?”

It’s a question we’ve been asked before but a question that we’ve been asked in earnest since Autumn Budget 2024 changed up employer National Insurance quite dramatically, writes Dan Mepham, boss at SG Accounting.

Employer NICs changes from April: what’s happening?

In summary, from April 6th, 2025, employers will pay national insurance contributions (NIC) on employees’ earnings above £5,000 at a rate of 15%.

In the contractor sector, it is common for single-director limited companies to hire an employee, even if it is just for administrative and company secretarial duties.

When considering what salary level in 2025-26 to pay the employee, it is crucial to ensure that the salary paid reflects the work performed and complies with the national living wage requirements.

The boosted Employment Allowance

The Employment Allowance currently allows businesses with Employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill.

Positively, the government will increase the Employment Allowance from £5,000 to £10,500, and it will remove the £100,000 threshold for eligibility, expanding the EA to all eligible employers with employer NICs bills from April 6th 2025.

Be aware, though, if you're the sole director of a company without any employees, you cannot claim Employment Allowance against the National Insurance your limited company pays to HMRC on your director's salary.

Employer NICs changes: Example calculation

Let’s now look at an employer NICs case study factoring in the National Insurance changes (all of which were announced at Autumn Budget).

Remember, aside from the increase in the EA, and the new 15% rate, the government also said on October 30th 2024 that the secondary threshold, above which employer NIC is payable, will fall from £9,100 a year (currently) to £5,000 a year.

As a result, from April 6th 2025, an additional £4,100 is potentially subject to charge, and at the new higher rate of employer NICs -- 15%.

Below, we consider the HMRC liabilities from the National Insurance changes of a limited company employee on a salary of £25,000:

Additional payroll considerations for 2025-26

• Real Time Information (RTI)

-         Under RTI, employers must report employee payments and deductions to HMRC every time they pay their employees, not just at the end of the tax year. Your accountant will be able to do this reporting for you if you do not want to file yourself.

• Pension Contributions

-         Under the Pensions Act 2008, every employer in the UK must put their eligible staff into a workplace pension and pay into it. If you employ at least one person, that means you’re classed as an employer, and by law, you have responsibilities that you need to act on.

What about the NICs changes with a limited company secretary, or your spouse?

In some situations running a contractor limited company, it can be very beneficial to bring a spouse into the business as a shareholder, employee or both.

Employing a spouse or a family member to ensure the admin or core business services are taken care of frees up the director to maximise the company income.

Paying them a salary can maximise household tax efficiencies, by utilising their income thresholds for tax liabilities.

Company Secretaries

• General Employees

- If a company secretary is employed under a standard employment contract and earns above the new secondary threshold, the company will need to pay employer NICs on their earnings above this threshold.

• Directors

-         If the company secretary is also a director, they might be subject to annual NI calculations, but the reduced threshold of £5,000 will still apply to employer contributions on their earnings.

Spouses

• Employed Spouses: Paying a family member is like paying any other employee and needs to be treated as such. If a spouse is employed by the company and earns above the new secondary threshold (£5,000 for 2025-26), the company will need to pay employer NI contributions on their earnings above this threshold.

• Director Spouses: If the spouse is also a director, similar rules to those for directors apply, and their NI contributions might be calculated annually, but the new threshold will still affect the employer contributions.

NICs changes as a one-person company: final need-to-know

In summary, a single-director limited company that employs individuals for administrative and company secretarial duties, including spouses, will face increased National Insurance (NI) contributions due to the reduced secondary threshold, effective from April 6th 2025.

Similarly from April 6th 2025, employers will pay NI at a rate of 15% (on employee earnings above £5,000).

It is essential for limited company contractors to plan for these NICs changes, which will mean ensuring payroll systems are updated accordingly and that salaries are both reflective of the work performed and compliant with national living wage requirements.

For anything tricker -- or even getting those not-insignificant tasks ticked off before April 6th, your contractor accountant should be on hand to help. But reach out to us directly if you want practical, tailored assistance, or perhaps just a second opinion on navigating what’s currently set to be higher employer National Insurance Contributions for the new tax year.