Will you or your business pay more National Insurance from April 2025? 

Changes to National Insurance (NIC) will take effect from April 2025, impacting employees, employers, and the self-employed. 

Businesses with employees will see the most significant changes. While very small businesses may benefit from National Insurance savings, those with more than a handful of employees will likely pay more in employer NICs. 

Key changes for employers 

From 6 April 2025, the Government will introduce four key changes affecting employer National Insurance contributions: 

Tax increases: 

The secondary Class 1 NIC threshold (the level at which employers start paying NICs) will decrease from £9,100 to £5,000 per annum. This means employers will pay NICs on staff earning more than £5,000 a year. 

The main employer NIC rate will increase from 13.8% to 15%. This also applies to Class 1A and Class 1B NICs for taxable benefits-in-kind. 

Employment Allowance Enhancements: 

All employers will be eligible to claim the Employment Allowance, removing the previous restriction for businesses with an NIC liability over £100,000. 

The Employment Allowance will increase from £5,000 to £10,500, reducing employer NIC liabilities for eligible businesses. 

However, single-director companies (where the director is the sole employee earning above £5,000) remain ineligible for the Employment Allowance. 

Page 2 of 4 Updated: January 2025

Changes to National Insurance (NIC) from April 2025 

How this affects your business 

For most businesses with employees, these changes will increase costs. Ignoring the benefit of the increased Employment Allowance, a company employing someone on the UK average salary of £36,000 will pay an additional £938 per year in employer NICs. 

However, smaller businesses may benefit from the increased allowance. For example, businesses with fewer than six employees earning £36,000 each should see an overall NIC reduction. Larger employers or those paying higher salaries will see costs rise as the allowance becomes less impactful. 

That said, with the increased Employment Allowance, it is expected that around 865,000 employers will be exempt from paying NICs, and more than half of employers with NIC liabilities will not be worse off in the next tax year. 

Changes for Employees 

Employees will not see direct changes in National Insurance from April 2025. The main employee NIC rates remain unchanged at: 

8% (for earnings between £12,570 and £50,270) 

2% (for earnings above £50,270) 

Changes for the Self-Employed 

Self-employed individuals may benefit from recent changes: 

Class 2 NICs (previously £3.45 per week) have been abolished for most self-employed individuals earning over £12,570 from 6 April 2024 - a saving of £179.40 per year. 

The Class 4 NIC rate (on profits between £12,570 and £50,270) will drop from 9% to 6%. The rate for profits above £50,270 remains at 2%. 

Page 3 of 4

Updated: January 2025 

Changes to National Insurance (NIC) from April 2025 

Impact on UK Startups 

The Autumn Budget 2024 National Insurance changes will have mixed effects on startups, with both increased costs and potential savings. 

Startups should consider three key changes: 

1. Higher Employment Costs – The increase in employer NICs from 13.8% to 15% raises staffing costs, especially for growing teams. 

2. Lower Earnings Threshold – The NIC threshold for employers will drop from £9,100 to £5,000, meaning NICs kick in sooner. 

3. Employment Allowance Benefits – The increased Employment Allowance (£10,500) and removal of the £100,000 cap could help many startups offset higher costs. 

How can businesses reduce costs? 

While these changes will raise employment costs, strategic planning can help mitigate the impact. 

Options include: 

Salary Sacrifice Schemes – Reducing gross salary in exchange for benefits such as increased pension contributions can lower NIC liabilities. 

Maximising R&D Tax Relief – Startups engaged in innovation can benefit from R&D tax relief, which includes staff costs for qualifying projects. The increased NIC burden could, in turn, increase R&D tax relief claims, helping to offset costs. 

How can Onside help? 

Our expert team of accountants and tax advisors can help you navigate these changes, ensuring your business remains compliant while maximising tax reliefs and allowances. 

We can: 

Assess your NIC liabilities and explore potential savings. 

Advise on remuneration structures to reduce employer NIC cost. 

Identify and support other tax reliefs such as R&D tax credits which might offset the increased costs.

Unlocking Tax Benefits for Innovation

You may be eligible for valuable R&D tax relief. 

If your company is investing in innovation, you may qualify for valuable R&D tax relief. The UK’s Research & Development (R&D) tax credit scheme is designed to support companies developing new or improved products, processes, or software. 

Profit making companies can save tax at between 19% - 25%, and loss-making companies can claim a cash credit worth up to 27% of their qualifying R&D spend. 

This factsheet outlines the key things you need to know to maximise the value for your company. 

What qualifies as R&D? 

To qualify for R&D tax relief, your company must be: 

Seeking an advance in science or technology – your work should contribute to a new or improved product, process, or service, not just for your company, but within your industry. 

Overcoming scientific or technological uncertainty – you must be solving problems where the solution isn’t readily available or known by a competent professional in the field. 

Going beyond routine development – simply upgrading software or refining existing processes without a scientific or technological challenge may not qualify. 

Examples of potentially qualifying R&D work: 

Developing new software, algorithms, or data processing techniques. Creating new materials or engineering solutions. 

Advancing AI, automation, or machine learning applications. 

Improving manufacturing processes to make them more efficient. Experimenting with new drug formulations or medical devices. 

Unlocking Tax Benefits for Innovation

What costs can be claimed? 

The scheme covers a wide range of R&D-related expenses, including: 

Staff costs – salaries, employers NICs, and employers pensions directly involved in R&D. Expenses reimbursed to employees e.g. travel, may also qualify as R&D staff costs in certain circumstances. 

Subcontractor & freelancer costs – a portion of R&D-related subcontractor, and externally provided worker costs (in most circumstances, for accounting periods starting on/after April 2024, these need to be UK based subcontractors/workers, except where replicating the conditions in the UK is wholly unreasonable). 

Materials and consumables – items used up in development, such as materials for prototypes, water, fuel, and power. 

Software – where it is used in R&D activities. 

Data licenses and cloud computing – including data storage, hardware facilities, operating systems and software platforms. 

Clinical trial volunteers – subjects of clinical trials, for example new drugs or medical techniques.

Unlocking Tax Benefits for Innovation

How to prepare for an R&D claim. 

HMRC expects companies to provide clear evidence of their R&D activities. Following Guidelines for Compliance (GfC) best practices can help strengthen your claim: 

Keep detailed project records – document the challenges you faced, experiments conducted, and technological advancements achieved. 

Track costs effectively – maintain records of staff time spent on R&D and allocate costs appropriately. 

Gather supporting evidence – meeting notes, test results, and prototypes can help demonstrate your innovation. 

The Onside team can provide guidance – book a call with us so we can help support you on your claim.

Key risks and common pitfalls. 

While R&D tax relief is generous, HMRC has increased scrutiny over claims. Be mindful of: 

Overstating routine work – ensure claims focus on genuine technological or scientific advancements. 

Insufficient documentation – poor record-keeping can lead to reduced or denied claims. 

Subcontractor/external worker complexities – some outsourced work qualifies at a reduced rate, and restrictions on non UK R&D work from April 2024 may mean less qualifying expenditure for the claim. 

Unlocking Tax Benefits for Innovation

Work with Onside 

Navigating R&D tax relief is complex, and the right advisor makes all the difference. At Onside we provide expert, end-to-end support to ensure a robust, compliant, and optimised claim. Here’s what sets us apart: 

Seamless accounting, tax & R&D support 

Managing R&D claims across multiple advisors can lead to delays, inefficiencies, and missed opportunities. At Onside we integrate accounting, finance, tax advisory, and R&D expertise under one roof - fully analysing expenditure, applying strategic tax planning, and delivering a seamless process. You are involved only when needed, with minimal disruption to your business. 

Specialist tax expertise 

Our CTA-qualified tax specialists and ACCA/CA-qualified accountants oversee your claim, ensuring deep technical knowledge and compliance. Every advisor working on your R&D claim is ATT-qualified or part-qualified in tax. With over 15 years of combined R&D experience, our leadership team, Martin Brennan ACCA - CEO, and Ryan Snape CTA - Managing Director, Onside Tax ensures your claim is handled by experts. 

Comprehensive analysis & high-quality reporting 

A strong R&D claim goes beyond just meeting requirements -it should be thoroughly analysed, well-structured, and backed by clear, technical reasoning. Our team meticulously prepares each claim, providing detailed justifications for qualifying activities and costs. We take pride in producing high-quality, clearly articulated reports that reflect your innovation, making the process smooth and straightforward.

Get in touch today to see how we can help your startup turn innovation into valuable tax relief!

Salary planning: balancing personal and company tax efficiency. 

As a director in an owner-managed business, your choice of salary structure can have important tax and financial implications. While taking a lower salary and drawing dividends may seem tax-efficient from a personal standpoint, there are broader considerations - particularly for companies claiming R&D tax relief. 

Here are key points to consider when setting your salary: 

State pension credit eligibility – To build qualifying years for your State Pension (assuming no other earned income), your salary must exceed the Lower Earnings Limit of £6,500 annually (2025/26 rate). 

Tax-free childcare eligibility – To qualify for tax-free childcare, you must earn at least 16 hours at the National Minimum Wage or National Living Wage. For 2024/25, this means a salary of at least £9,518 for those aged 21 and over, rising to £10,158 in 2025/26. 

Impact of higher earnings on childcare support – If your Adjusted Net Earnings exceed £100,000, you will lose eligibility for tax-free childcare. 

R&D Tax Relief and maximising business benefits – If your company carries out qualifying R&D activities, your salary (plus NICs and pension contributions) counts as eligible R&D expenditure. By taking a commercial salary, rather than a minimum salary and dividends, you could significantly increase your company’s R&D tax relief claim. This approach may enable your company to recover up to 27% of the additional salary cost as tax relief. 

While dividends often provide personal tax savings, a balanced approach, ensuring your salary reflects your commercial role in the business, can enhance your company’s tax efficiency and R&D relief opportunities.

Pre 5 April 2025 Tax Planning

Personal allowance - protect your £12,570 tax-free income. 

For 2024/25, your personal allowance is £12,570 – the amount of income you can earn before paying income tax. However, this allowance is reduced by £1 for every £2 of net relevant earnings you have over £100,000, and therefore is fully lost once your income exceeds £125,140 (the effective tax rate in this band of income is 60%). 

Furthermore, families that utilise the Tax Free Childcare scheme, and 15 or 30 free hours, may lose entitlement to this support where one of the parents earns over £100,000, and so ensuring that your income remains below this threshold is valuable. 

Expert Tip: 

If your income has exceeded £100,000, you can reduce your net relevant earnings by making personal pension contributions, or through charitable donations. Both of these strategies can help restore your personal allowance, and reduce your net relevant earnings below £100,000, and your overall tax liability.

Pre 5 April 2025 Tax Planning

Dividends. 

In addition to personal allowance, your first £500 of dividend income is taxed at 0%, after which the following tax rates apply: 

8.75% for basic rate taxpayers. 

33.75% for higher rate. 

39.35% for additional rate. 

It is important to plan ahead, with a view to managing dividend income across tax years. Any unused allowances/tax bands cannot be carried forward into the following tax year – if you don’t use it, you lose it! 

Professional advice can make all the difference! 

Be cautious when setting your salary below the personal allowance threshold of £12,570 to avoid losing eligibility for state pension credit and tax-free childcare. Similarly, be mindful of the implications of earning over £100,000, as this can affect your entitlement to tax-free childcare, reduce your personal allowance, and impact your tax rates. 

Expert Tip: 

Take dividends to use up your 0% allowance, and any available basic rate tax band (up to £37,700). 

Where your spouse/civil partner has unused allowances/tax bands, consider gifting them shares (gifts of assets between spouses/civil partners are free from capital gains tax) to utilise the allowances and maximise tax effective income for the household.

Child Benefit – watch out for the high-income charge. 

If you or your partner have adjusted net income over £60,000, you may be subject to the high income child benefit charge (HICBC). This applies as follows: 

Income between £60,000 and £80,000: you repay 1% of child benefit for every £200 over £60,000. 

Income of £80,000 or more: the full child benefit amount must be repaid. Expert Tip: 

Making personal pension contributions will reduce adjusted net income, reducing the HICBC and therefore preserving child benefit. Furthermore, gift aid donations will also reduce your adjusted net income. You will need to ensure that these contributions are made on or before 5 April 2025 to reduce your income for this tax year. 

Pensions - the ultimate tax planning tool. 

Pensions remain one of the most effective ways to reduce your tax bill, whilst building long-term wealth and supporting estate planning. They can help mitigate higher taxes, manage tax bands, and reclaim lost allowances, including child benefit, childcare funding support and personal allowances. 

The annual allowance for pensions is £60,000 (subject to tapering). You can carry forward unused annual allowances from the previous three tax years, as long as you were a member of a UK pension scheme during those years. For example, if you had £10,000 unused annual allowance in the prior 3 tax years, you may be able to contribute up to £90,000 this tax year (subject to your earnings) giving you significant tax-saving potential (e.g. £60k current year, plus 3 x £10k for prior years). 

Contributions must be received by your pension provider before 5 April 2025 to count for this tax year. 

Contributions attract tax relief at your highest tax rate (20%, 40% or 45%). Meaning a £1,000 pension contribution would cost £800 for a basic rate taxpayer. For higher earners, it can cost as little as £550 after claiming extra relief.

Why act before 5 April 2025?

It makes financial sense to be proactive. 

Proactive tax planning, ahead of the new tax year, can ensure you use up all available allowances, optimise your income and profit extraction, and avoid unexpected tax bills. 

Unused dividend allowance and tax bands should be utilised where possible by 5 April 2025. 

Unused pension allowances from 2021/22 will expire if not used before 5 April 2025 (tax relief is only secured once the contribution is received by your pension provider). 

Pension and charitable contributions are effective tools to reduce your tax bill, reinstate child benefit and childcare support, and boost your retirement savings at the same time. You can preserve your personal allowance by making pension contributions and charitable donations to bring your income below £100,000. 

How can Onside Tax help? 

At Onside Tax, we help startups navigate complex tax regulations, minimising liabilities while ensuring compliance and fostering business growth. 

In addition, we assist individuals with their personal tax affairs, offering tailored advice on self-assessment, tax planning, and reliefs to optimise their financial position and ensure full compliance. 

If you need support reviewing your personal strategy, now is the time to act! 

www.onsidetax.com 

ryan.snape@onsidetax.com

Why EMI Schemes Have Incredible Tax Advantages for Employees Tax Efficiency 

Employees can acquire shares at a fixed price (exercise price) in the future. No tax is payable at the grant or exercise stage, provided the exercise price is equal to the share value at the date of grant. 

When shares are sold, Capital Gains Tax (CGT) applies on any increase in value from acquisition, which is generally much lower than income tax rates. 

If Business Asset Disposal Relief (BADR) is available, CGT can be as low as 10% (based on tax rate in force for 2024/25). 

Key Benefits 

Helps retain and incentivise employees by aligning their interests with business growth. Can be cheaper, and more efficient than recruitment processes. 

Can be tailored to specific employees and business goals. 

Potential Issues with EMI Schemes 

Valuations and Timing 

The lower the share value at the grant date, the better the tax result for employees. Granting share options later, when the company value may be higher, may increase the cost/tax exposure for employees on the scheme. 

EMI schemes are most beneficial when set up/options granted, early in a company’s life, when share value may be immaterial. Funding rounds may impact valuations, so planning is critical. 

Eligibility and Limits 

Restricted to companies with gross assets under £30m and fewer than 250 employees.

Certain industries (e.g., accountancy) are excluded. 

Each employee is limited to options worth £250k. 

Employee Share Option Schemes

Common Alternative Schemes 

Unapproved Share Option Schemes 

May be used for contractors/freelancers, part-time workers, or overseas employees. Not tax advantaged, but more flexible. 

Company Share Option Plans (CSOPs) 

Available for larger companies, but individual limits are lower (£30k per employee). Growth Shares 

A separate share class with rights tied to specific events (e.g., sale). Typically excludes voting/dividend rights but rewards value creation.