National Insurance in 2026: What Small Businesses Need to Know

Employer National Insurance remains a significant payroll cost for UK businesses in 2026.

For the 2026/27 tax year, employers generally pay 15% Class 1 National Insurance on employee earnings above the Secondary Threshold. That threshold is £5,000 a year, meaning employer contributions start at a much lower earnings level than they did before April 2025. GOV.UK

For small businesses with several employees, that can make recruitment and pay decisions more expensive.

Employer National Insurance rates in 2026

The main rates for 2026/27 are:

• 15% employer National Insurance on earnings above the Secondary Threshold
• £5,000 annual Secondary Threshold
• 15% Class 1A National Insurance on most taxable benefits and expenses
• £10,500 Employment Allowance for eligible employers GOV.UK

The £5,000 threshold is due to remain in place until April 2028 before increasing in line with CPI. GOV.UK

Employment Allowance reduces the impact for many small firms

The Employment Allowance is particularly important for smaller employers.

Eligible businesses can reduce their annual employer National Insurance bill by up to £10,500 in 2026/27. The previous rule restricting the allowance to employers with National Insurance liabilities below £100,000 has also been removed. GOV.UK

That means more businesses can qualify, although normal eligibility rules still apply.

A company with only one director, for example, cannot usually claim if that director is the only employee liable for employer National Insurance. GOV.UK

Employees pay a different rate

Employee National Insurance has not increased alongside the employer rate.

For most employees in 2026/27, Class 1 National Insurance is:

• 8% on earnings between £12,570 and £50,270
• 2% on earnings above £50,270 GOV.UK

These contributions are deducted through payroll and are separate from the employer’s 15% contribution.

Self-employed National Insurance

For sole traders, the position is different.

In 2026/27, Class 4 National Insurance is charged at:

• 6% on profits between £12,570 and £50,270
• 2% on profits above £50,270. GOV.UK

Where profits are at least £7,105, Class 2 contributions are generally treated as paid for National Insurance record purposes, so most self-employed people do not have to make a separate Class 2 payment. GOV.UK

The impact on hiring

For employers, the combination of a 15% rate and £5,000 threshold means the cost of employing someone extends well beyond their headline salary.

That makes it increasingly important to calculate the full employment cost before taking on staff, including:

• salary;
• employer National Insurance;
• pension contributions;
• holiday pay;
• statutory employment costs; and
• benefits or bonuses.

For businesses operating on tight margins, relatively small changes in staffing can have a noticeable effect on profitability.

Payroll planning matters more

The practical priority for small businesses is to make sure payroll software is using the correct 2026/27 rates and that any available Employment Allowance is being claimed.

Businesses should also review staffing budgets before agreeing pay rises or recruiting new employees.

Good payroll forecasting can help avoid a situation where turnover grows but additional employment costs reduce the benefit of that growth.

What this means for business value

Higher employment costs can also affect the value of a business.

A buyer will normally look at maintainable profit rather than turnover alone. If payroll and employer National Insurance costs rise without a corresponding improvement in revenue or productivity, maintainable earnings can fall.

Businesses with efficient staffing, good productivity and clear financial records are therefore easier for buyers to assess and can be better positioned when they come to market.

Understanding the value of your business

If employment costs, margins or profits have changed, the value of your business may have changed too.

Intelligent offers a free, confidential business valuation based on your financial performance, sector and current buyer demand.

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