As of Sunday 6 April 2025, businesses have seen an increase in employers’ National Insurance contributions (NICs), rising from 13.8% to 15% on salaries above £5000 (where previously it was £9100). The Employment Allowance has also risen to £10,500.

What this means for SMEs

Ultimately, businesses will have to pay more NICs on more of their employees’ salaries - a change that carries significant financial and operational implications for both employers and employees.

A recent survey by Towergate Insurance aimed at identifying the primary challenges for SMEs in 2025 found that:

● 54% of respondents cited the increase in NICs as their biggest concern.
● 25% highlighted cybersecurity risks.
● 20% pointed to difficulties in recruitment and retention.
● 1% raised concerns about broader economic issues impacting SMEs.
With over half of the surveyed businesses highlighting the NICs increase as their biggest concern, it’s clear that the increase is placing substantial pressure on businesses.

What impact will the National Insurance hike have on small businesses (SMEs)?

Higher employer NICs mean increased payroll costs, which can lead to tough decisions on hiring, salary increases, and even job security for existing employees. For many SMEs already operating on tight margins, this additional financial burden could stifle growth, investment, and long-term planning. Some SMEs may also choose to cut back on their insurance coverage, leaving them in a precarious position should issues arise.

What impact will the National Insurance hike have on employees?

Beyond businesses, employees are also feeling the effects. Higher employer costs may result in fewer salary increases, reduced benefits, or cutbacks in hiring, making it harder for businesses to retain and attract top talent. In some cases, SMEs may be forced to pass costs down to employees, impacting take-home pay and overall job satisfaction.

Salary sacrifice schemes: A strategic ally for SMEs?

Amidst these financial pressures, salary sacrifice schemes have emerged as a key strategy to help businesses and employees navigate the rising cost of National Insurance. These schemes allow employees to exchange a portion of their salary for non-cash benefits - such as pension contributions, cycle-to-work schemes, or electric vehicle leasing - thereby reducing both employee and employer NICs.

Salary Sacrifice schemes have often been seen as being the domain of large employers. SMEs have perhaps not had the internal resource or knowledge (dedicated HR benefits specialists) to understand the intricacies of them, or where they have, sometimes believing that costs of implementation and change of process make them prohibitive for them. However, these schemes can help offset the financial strain by lowering overall payroll costs while offering employees attractive benefits. This enhances employee retention and satisfaction and provides a more sustainable approach to managing rising operational expenses.

With technology developments, cost efficient solutions are helping employers of all sizes and industries. This is proving invaluable to these businesses and their employees.

Iain Laws, CEO of Towergate Employee Benefits, comments:

“Salary sacrifice has emerged as a strategic advantage for employers since the recent Autumn Budget, and should not be underestimated as a crucial employee satisfaction tool. An employee benefits advisor can evaluate a business’ existing payroll and pension strategy and help them to calculate potential NI savings and help implement pension salary sacrifice to unlock new avenues for cost saving.”
While National Insurance increases were the most pressing financial worry, respondents also raised concerns about broader economic challenges, including inflation, supply chain disruptions, and ongoing uncertainty around interest rates. These factors continue to create a challenging environment for SMEs as they try to plan for the future.

Richard Tuplin, CEO of Towergate Insurance, comments:

“As a business ourselves we understand the challenges that businesses of all shapes and sizes are facing, which were confirmed by responders in this survey. We understand that unexpected increased costs such as we saw with NI can create temptation to cut costs elsewhere and take risks you otherwise wouldn’t.”

Keep your small business protected with Towergate

When business costs are soaring, it can be tempting to cut back on your insurance. But if your business faces a problem, and you aren’t covered, you may be left out of pocket. Always ensure cheaper premiums are providing like-for-like cover and speak to your insurance advisor to understand what protection the policy provides. At Towergate, we can offer advice and support to businesses struggling in the face of the NI hikes and help to find the insurance cover that works for you.

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems, we recommend that professional advice be sought.