National Insurance contributions calculator

Key Takeaways

• National Insurance contributions (NICs) are essential for employers in the UK, they pay for social security benefits, including the state pension and are compulsory for any business with employees earning above specified thresholds.

• The calculation of NICs is based on earnings thresholds, employers pay 13.8% on earnings above the threshold, and upcoming changes will increase this to 15% from April 2025.

• Recent changes to National Insurance rates and thresholds reminds us to stay informed to manage finances and remain compliant.

National Insurance Contributions for Employers

National Insurance contributions (NICs) are the backbone of the UK’s social security system. Employers pay these contributions so employees can qualify for benefits like the state pension and tax and national insurance. In short your business needs to comply with NICs for both legal and employee benefits.

All employers with employees aged 16 and over earning above specific thresholds must pay National Insurance contributions. Beyond being a legal requirement these contributions are an investment in your workforce’s future and grants access to contributory benefits.

Knowing how much National Insurance your business owes and understanding how it’s calculated is key to financial management.

Earnings Thresholds Explained

Earnings thresholds play a big part in determining National Insurance payments. The Secondary Threshold is the point where employers start paying National Insurance for their employees. Earnings below this threshold are exempt.

At the other end of the scale the Upper Earnings Limit is the cap on the amount of earnings subject to the standard rate of NICs. Knowing these thresholds allows you to convert your employees’ gross earnings into National Insurance contributions.

National Insurance Rates 2024/25

This is by far the most significant announcement from the 2024 Autumn Budget. In the speech, the Chancellor announced that:

• Class 1 National Insurance payments will rise from 13.8% to 15%.
• The threshold for employers to start paying these contributions will decrease from £9,100 a year to £5,000.

This is a significant tax rise for employers. In fact, it amounts to an increase of roughly £986 a year for employees on £40,000 and around £1,226 a year for those on £60,000.

But for some SMEs, there’s a silver lining. The Employment Allowance will also be increased from £5,000 to £10,500, meaning you’ll be able to employ roughly four employees on minimum wage before paying National Insurance.

Calculating National Insurance

To calculate National Insurance for employers apply the rates to employees’ earnings above the Secondary Threshold. It seems daunting but with the right tools and knowledge it’s simple. Luckily we have a National Insurance calculator above that not only shows the NI calculation but also shows the changes from one year to another so you can keep track of your contributions.

To help visualise it we’ll share an example calculation below:

Example Calculation for an Employer

An employer is calculating NICs for an employee earning £1,000 per week. The employer pays 13.8% on earnings above the Secondary Threshold. With the employment allowance of £10,500 the first portion of the NICs may be offset against this allowance.

For earnings above £967 per week the employer would apply the standard rate of 13.8% in 2024/25, so all calculations are accurate and compliant. From April 2025 this rate will increase to 15% so understanding allowances and thresholds is key to the calculation.

Salary Sacrifice Schemes for Employers

Salary sacrifice schemes allow employees to reduce their gross pay in exchange for benefits like pension contributions. This reduction in gross pay reduces the amount of National Insurance for employers too.

Employers must ensure employees’ salaries don’t fall below the National Minimum Wage when using these schemes. Compliance is key to maximise benefits.

Special Considerations in National Insurance for Employers

Special considerations in National Insurance calculations include benefits-in-kind which can affect the contributions owed. Employers must report these using forms like the P11D and may face additional NICs.

Directors’ NICs require special attention as they are calculated annually not monthly. Understanding these rules is key to getting it right.

Benefits-in-Kind and Class 1A Contributions

Benefits-in-kind such as company cars or health insurance are non-cash benefits provided to employees. These benefits attract Class 1A contributions which are paid annually via the P11D(b) form. Employers must report these benefits accurately to ensure the correct amount of NICs is paid.

Understanding benefits-in-kind helps in managing overall contributions.

Directors’ National Insurance Contributions

Directors’ National Insurance contributions are unique in that they are calculated on their annual income. This annual earnings period affects both the timing and amount of contributions, unlike regular employees.

Directors’ earnings can be classed differently for NIC purposes. Understanding these differences means compliance and correct payment of contributions.

National Insurance Calculator for Employers

A National Insurance calculator is a must-have for estimating contributions. Enter the payment period, payment date and NI category letter and get your calculation in seconds. Useful for checking past payments and ensuring you get it right.

Voluntary Contributions and National Insurance Records for Employers

Voluntary contributions can be useful for employers with employees with gaps in their National Insurance history, to keep them eligible for benefits and the State Pension. Check employees’ National Insurance records regularly to ensure no gaps affect future benefits.

How National Insurance Affects State Pension for Employers

National Insurance contributions affect state pension eligibility for employees. At least 10 years of contributions are needed to qualify for the new state pension which can be achieved through paid contributions, credits or voluntary contributions.

Number of qualifying years determines the state pension amount. Having a complete NI record is key to maximising state pension benefits.

Changes in National Insurance Rates and Thresholds for Employers

Recent changes in National Insurance rates and thresholds are big for employers, especially with the national insurance changes. Employer NIC rate increases to 15% in April 2025 and the employment allowance will rise too reducing the NIC liability for businesses.

Freezing the NI threshold means more people will pay NIC as wages rise. Being informed about these changes helps you plan and manage your contributions better.

National Insurance for Self Employed Individuals from an Employer’s Perspective

While this is for employers, understanding self employed NICs can be useful if you have contractors in your business. Self employed individuals have Class 2 and Class 4 NICs.

Summary for Employers

In summary, knowing and calculating National Insurance correctly is key for employers. From knowing the thresholds and rates to using the NI calculator, be informed and you’ll manage your finances better.

By following this guide you’ll be compliant, optimise your contributions and secure your business’s financial future. Stay up to date with national insurance changes, use payroll software for accurate calculations and consider benefits and allowances on your overall liability.