As the 2025-2026 tax year approaches, UK small and medium-sized businesses (SMBs) are facing some big changes. From higher National Insurance (NI) contributions for employers to rises in the National Minimum Wage (NMW) and National Living Wage (NLW), these updates are set to impact payroll and operational costs.
In this article, we've outlined the key changes coming your way and shared some strategies to help your business stay on top.
1. Employer National Insurance Contributions Increase
What’s Changing?
Starting in April 2025, employers will need to pay 15% National Insurance on salaries above £5,000, up from the current rate of 13.8%. This increase will directly impact payroll costs, particularly those businesses with larger teams or higher-paid employees.
How Will This Affect SMBs?
For SMBs, who often run on tighter budgets, this could be a big hit. The extra costs will depend on the size of your team and the pay structure, but it’s really important to plan ahead for these increases.
What Can Businesses Do?
- Review Salary & Benefits: Reassess employee compensation to make sure you stay competitive but are still keeping the costs manageable. Consider offering other benefits like health and wellbeing programmes or more training opportunities to help offset the financial pressure.
- Automate Where You Can: Streamlining things like payroll, accounting, and marketing by automating admin tasks can help cut costs elsewhere, giving you some room to balance out those higher NI contributions.
- Look Into Tax Reliefs: Explore potential tax reliefs for your business, such as the Employment Allowance, which can reduce overall tax liabilities.
2. Changes to Employment Allowance
What’s Changing?
The Employment Allowance, which helps businesses reduce their National Insurance contributions, will be adjusted in April 2025. Employment Allowance will increase to £10,500 per year from 6th April 2025. The £100,000 eligibility threshold (the cap where employers are not eligible for the employment allowance if the amount of employers NIC they pay exceeds £100,000 in the previous year) is being removed. These changes aim to make it easier for more businesses to access the allowance and will be particularly helpful for smaller businesses to avoid the worst impacts of the NI increase.
How Will This Affect SMBs?
If you're running a smaller business, these changes could be a lifeline, which will help offset some of the financial pressures from the rising National Insurance rates.
What Can Businesses Do?
- Stay On Top of Eligibility: Make sure you’re claiming the Employment Allowance if you’re eligible. This could help reduce your overall NI costs.
- Keep Track of Compliance: Ensure your business is up-to-date with payroll regulations to avoid missing out on any benefits or penalties. (Payroll software, like Aigence will provide automatic updates)
3. National Minimum Wage (NMW) & National Living Wage (NLW) Increases
What’s Changing?
In April 2025, both the National Minimum Wage for younger workers and the National Living Wage for those aged 23 and over will rise. These increases will push up salary costs for businesses with entry-level or minimum-wage employees, particularly in industries like retail, hospitality, and social care.
How Will This Affect SMBs?
The pay baseline for employees is getting higher, which means businesses in low-wage sectors will face increased salary bills. This could be tough for SMBs trying to manage tight payroll budgets.
What Can Businesses Do?
- Invest in Employee Training: Offering training opportunities can boost your team’s value and make higher wages more justifiable. Providing training opportunities also helps with talent retention and team morale, reducing people turnover costs.
- Boost Productivity with Tech: Invest in tools like automation and AI to streamline operations and reduce the need for labour-intensive admin tasks.
4. Other Considerations for SMBs
- Review Available Tax Reliefs: There are a range of tax credits and allowances available to SMBs, such as research and development tax credits, which can help lower your liabilities.
- Focus on Employee Well-being: With salary bills increasing, it’s worth looking into other ways to keep your employees happy, like wellness programs, mental health support, or financial wellbeing education.
Conclusion
The changes coming in the 2025-2026 tax year present challenges for UK SMBs, particularly with higher National Insurance contributions and salary bills. But these adjustments also provide opportunities for businesses to think smarter about cost-saving measures. Automation, tech investments, and employee development are all ways to help offset any rising costs.
By staying informed, proactive, and making the most of available support, SMBs can continue to thrive.
