NIC Rules & Employer Thresholds Explained for UK Directors and Employers

Introduction: Why NIC Thresholds Matter for Employers

National Insurance Contributions (NICs) represent a significant payroll cost for UK employers — and directors especially must understand how thresholds and eligibility rules affect what they pay. With recent changes from 6 April 2025, errors can lead to unexpected costs, penalties, or lost savings.

This guide lays out the updated primary and secondary thresholds, NIC bands for employees and employers, the Employment Allowance rules (including the single-director exception), and what you’ll need to watch out for to maintain compliance without overpaying.

Primary vs Secondary Thresholds

Primary Threshold (Employees’ NIC)

• Employees begin paying Class 1 NIC once their earnings exceed £12,570/year.

• Earnings below that still count toward state pension if they exceed the Lower Earnings Limit (£6,396/year).

Secondary Threshold (Employers’ NIC)

• From 6 April 2025, employers pay NIC on earnings above £5,000/year (previously £9,100).

• Employers must budget for this on every employee or director whose pay crosses this threshold.

NIC Bands for Employees & Employers (2025/26)

Employees (Class 1 Primary NIC)

• 0% on earnings up to £12,570/year

• 8% on earnings between £12,570 – £50,270/year

• 2% on earnings above £50,270/year

Employers (Class 1 Secondary NIC)

• 15.0% on earnings above £5,000/year

These contributions are handled via payroll and reported under RTI. Employers are responsible for deducting employee NIC, paying employer NIC, and reporting correctly.

Employment Allowance & Single-Director Rule

• Many employers benefit from Employment Allowance, which reduces employer NIC liability each year.

• However, a limited company with only one director who is also the only individual paid above the secondary NIC threshold is not eligible for Employment Allowance.

• If a company hires another employee (or has additional directors) who are paid above the threshold, then the company becomes eligible from that point in the tax year.

This rule is known as the single-director company exception under HMRC’s Employment Allowance guidance.

Employer Obligations When Crossing Thresholds

When director/employee pay crosses the relevant thresholds, employers must:

• Deduct the correct Class 1 NIC from employee pay through payroll.

• Pay the Class 1 secondary (employer) NIC on earnings over £5,000/year.

• Ensure RTI submissions reflect accurate earnings and NIC deductions.

• Incorporate NIC costs into budgeting and forward cash flow forecasts.

Failing to comply can lead to:

• Interest on NIC underpayments.

• Penalties for late or inaccurate payroll filings.

• HMRC investigations and penalty escalation for repeat failures.

How Wexley Prevents Directors from NIC Surprises

At Wexley & Associates, we help directors:

• Stay up to date with threshold changes and eligibility rules.

• Implement payroll systems with alerts to flag when employees’ pay crosses NIC thresholds.

• Minimise employer NIC exposure using careful salary strategies, while ensuring legal compliance.

• Ensure Employment Allowance eligibility is assessed correctly — so you’re not paying if you’re not eligible, or making sure you claim when you can.

Stay Compliant, Stay Efficient

NIC thresholds and rules might seem technical, but overlooking them can lead to hefty costs. With accurate payroll setup and expert support, you can avoid penalties and optimise your payroll spend.

Contact Wexley & Associates today for expert NIC planning and support.

References

• HMRC: Rates and thresholds for employers 2025-26

• HMRC: National Insurance contributions

• HMRC: Single-director companies and Employment Allowance: further employer guidance

• Related Wex Insider article: Directors’ Payroll Treatment Explained