Two and a half months into the new tax year and the full weight of the 2026/27 employer National Insurance changes is now visible in every payroll run. The rate went up, the threshold came down, and the Employment Allowance nearly doubled. If your finance team hasn’t modelled the full-year cash impact yet, this is the moment to do it — especially with the Class 1A NIC payment deadline arriving on 19 July 2026.
What Actually Changed on 6 April 2026
Three simultaneous changes took effect on 6 April 2026, each moving in a different direction. Together they represent the most significant restructuring of the employer NIC base since the introduction of the Employment Allowance in 2014.
Rate increase. The main employer Class 1 NIC rate rose from 13.8% to 15%. That is a 1.2 percentage point increase, which sounds modest until you multiply it across a payroll of any scale. On a salary of £50,000 the additional rate cost alone adds £600 per year. Class 1A (on benefits in kind) and Class 1B (on PAYE Settlement Agreement items) both move to 15% in parallel.
Threshold reduction. The Secondary Threshold — the point at which employer NICs start — fell from £9,100 to £5,000 per year. This is not a minor technical adjustment. It means you now pay NIC on an additional £4,100 of each employee’s earnings at 15%, an automatic additional cost of £615 per employee before the rate change is even considered. This threshold is frozen through to April 2028 under the Autumn Budget 2024 commitment.
Employment Allowance increase. The Employment Allowance rose from £5,000 to £10,500, and the previous £100,000 prior-year NIC eligibility cap was removed entirely. More employers qualify. The allowance is larger. For small employers this partially offsets the above; for larger employers it makes no material difference to the net cost increase.
The HMRC CWG2 guide for 2026/27 sets out the full technical framework. Updated from 6 April 2026, it is the definitive reference for payroll teams dealing with category letters, directors’ NIC, and the interaction of multiple rates.
The Real Cost Per Employee — Running the Numbers
The combined effect of a higher rate and a lower threshold is not additive — it compounds. Here is what the change means in practice across three typical salary points:
£25,000 salary: Old regime — £2,194 employer NIC. New regime — £3,000. Increase: £806 per employee (+37%). The proportional hit is largest on lower salaries because the threshold change represents a higher share of total earnings above the old threshold.
£35,000 salary: Old regime — £3,573. New regime — £4,500. Increase: £927 per employee (+26%).
£50,000 salary: Old regime — £5,644. New regime — £6,750. Increase: £1,106 per employee (+20%).
For a business with 30 employees on average salaries of £35,000 — a typical mid-sized professional services or manufacturing employer — the gross additional NIC cost this year is approximately £27,810. Corporation tax relief at 25% reduces the net cash impact to around £20,858, but that still represents real additional working capital pressure over the year.
Employment Allowance: Who Gains and Who Does Not
The Employment Allowance is worth up to £10,500 per year and offsets employer Class 1 NIC until the allowance is exhausted. It is claimed via the Employer Payment Summary in your payroll software. Critically, it is not automatic — it must be actively claimed each tax year.
Who qualifies: any employer whose total employer NIC bill was under £100,000 in the previous tax year — but from 2026/27, that £100,000 prior-year cap is gone. HMRC has opened the allowance to all eligible employers regardless of prior-year NIC levels. The remaining exclusions are: single-director companies with no other employees, public bodies, and employers where all employees are employed for personal domestic purposes.
For very small employers — three employees at £30,000 each — the gross employer NIC bill at 15% is £11,250. After the Employment Allowance of £10,500, the net NIC cost is just £750 for the year. This is genuinely transformative for micro-employers. However, for a business with 50 employees the allowance covers roughly two employees’ worth of NIC and the net cost increase remains significant.
One structural point for group entities: connected companies and charities can only claim one Employment Allowance between them. In a group with multiple employing entities, allocate the allowance to the entity with the largest employer NIC bill. Review this annually — group structures change and HMRC will challenge mis-allocations.
The Under-21 and Apprentice Zero Rate: An Underused Tool
Employees under 21 and apprentices under 25 attract a zero employer NIC rate on earnings up to the Upper Secondary Threshold of £50,270. Above that level, the standard 15% applies. This rate band has not changed — but the gap between zero and 15% has widened, making young workers and apprentices materially cheaper to employ from an employer NIC perspective.
For a business considering a recruitment strategy that includes graduate or apprenticeship programmes, the annual NIC saving on a £28,000 salary — the approximate graduate starting salary in many sectors — is £3,450 compared to employing the same person after they turn 21. Over a two-year graduate training cohort of ten people, that is a £69,000 cumulative NIC saving, before any apprenticeship levy considerations. This is not a reason to discriminate in hiring, but it should be factored into workforce planning models.
Directors’ NIC and the Annual Earnings Period
Director remuneration requires particular attention. Directors’ NIC is calculated on an annual earnings period basis, not a periodic one. This means the Secondary Threshold of £5,000 applies for the whole year regardless of how frequently the director is paid. A director taking a low monthly salary and a large year-end dividend needs to ensure the salary element is correctly structured.
The widely used approach of paying directors at or just above the Lower Earnings Limit (£6,500 in 2026/27) to qualify for a State Pension contributory year without triggering employer NICs remains valid. At exactly £6,500 there is no employer NIC liability. At £6,501 the employer NIC cost is just 15p. The precision required here is unchanged — but the stakes of getting it wrong are marginally higher with the rate at 15%.
Single-director companies remain ineligible for the Employment Allowance where the director is the sole employee. If you are advising owner-managed businesses, consider whether adding a second genuine employee — even part-time — could unlock the £10,500 Employment Allowance. The test is genuine employment, not a paper arrangement.
Class 1A NIC: The 19 July 2026 Deadline
Class 1A NIC is payable on most benefits in kind — company cars, private medical insurance, gym memberships, and the rest. The rate is now 15%. The P11D forms reporting these benefits are due to HMRC by 6 July 2026. The Class 1A NIC payment itself is due by 19 July 2026 (22 July if paying electronically).
Employers who payrolled benefits from April 2026 onwards under the new mandatory payrolling regime (covered in a previous post on this blog) still need to submit a P11D(b) to confirm the Class 1A NIC due and make the payment. The payrolling of the income tax element does not eliminate the Class 1A NIC obligation — that remains an end-of-year settlement.
With the rate at 15%, any employer carrying a significant benefits-in-kind programme — particularly a fleet of company cars — should review whether the cost remains justified. Electric vehicles attract a 3% benefit-in-kind rate in 2026/27, rising to 4% in 2027/28. At those rates, even at 15% Class 1A, the NIC cost on an EV is materially lower than on a petrol or diesel equivalent.
Salary Sacrifice: The Underexploited Mitigation
Salary sacrifice arrangements reduce the employee’s contractual salary in exchange for non-cash benefits or employer pension contributions. Because employer NIC is calculated on the reduced salary, the employer saves NIC on the sacrificed amount. At 15%, the saving is now more valuable than it was at 13.8%.
The most tax-efficient forms of salary sacrifice remain pension contributions (employer into employee pension, both NIC and income tax saving) and electric vehicle leasing schemes. Cycle-to-work schemes, childcare voucher grandfathering, and enhanced employer-provided homeworking equipment also attract savings. The key compliance point is that arrangements must involve a genuine reduction in contractual salary — HMRC scrutinises arrangements where the sacrifice is notional or reversible.
For employers with 100 staff and average salaries of £35,000, if 30% participate in a salary sacrifice pension arrangement averaging £2,000 per year in contributions, the employer saves £9,000 in NIC annually at the new 15% rate. That is not transformational, but it is material and requires no structural change to the business.
Six CFO Actions Before the End of July
- Verify your Employment Allowance claim is active. Check the Employer Payment Summary submitted to HMRC confirms the EA has been claimed for 2026/27. It is not automatic. You can backdate claims up to four years if missed in a prior year.
- Model full-year employer NIC at 15%. Take your April and May actuals and project forward. Compare against your budget assumptions — if those were built on 13.8%, you are carrying an unmodelled variance.
- File P11D by 6 July and pay Class 1A by 19 July. HMRC levies interest on late Class 1A payments at the standard rate plus a late payment surcharge. This is a hard deadline.
- Review your benefits-in-kind programme. With Class 1A at 15%, the after-tax cost of maintaining a fleet of diesel or petrol company cars versus a pure cash car allowance changes materially. Run the numbers.
- Audit salary sacrifice participation. The NIC saving per £1 sacrificed has increased. If you have a pension or EV scheme with low take-up, now is the time to communicate the enhanced value to employees.
- Check group Employment Allowance allocation. If you have multiple connected entities, confirm the EA is claimed against the entity with the highest employer NIC bill. Connected companies cannot double-count it.
The Broader Picture
The combined effect of these changes means the UK employer NIC system in 2026/27 is structurally more expensive for most medium and large employers, with the threshold reduction creating a permanent base cost increase that affects every employee on any salary above £5,000. The Employment Allowance expansion is genuinely helpful for micro and small employers, but it does not alter the mathematics for businesses with payrolls above approximately 15 employees.
For CFOs and finance directors working in PE-backed businesses or advising on transactions, employer NIC now represents a more significant line in due diligence models. An acquired business with 200 employees and average salaries of £40,000 carries an employer NIC bill of approximately £1.05 million per year at the new rates. That is the number to stress-test before agreeing an enterprise value.
The HMRC Employer Bulletin for April 2026 and Agent Update Issue 143 both contain further guidance on the 2026/27 changes, including the updated guidance on internationally mobile employees and NIC liability timing — a separate complexity for groups with cross-border workforce arrangements.
If you need help modelling the employer NIC impact on your business, reviewing your Employment Allowance position, or structuring your benefits programme for the new rate environment, contact Mark Hendy at Tanous. Tanous advises owner-managed businesses, PE-backed groups, and CFOs on employment tax, payroll compliance, and business tax strategy.