Experts Comment: What Does The National Insurance Tax Rise Mean For UK Startups?

The government intends to raise employer National Insurance rates from 13.8% to 15% in April 2025. The threshold will also drop from £9,100 to £5,000 per year. Business leaders say these changes put extra strain on payroll budgets.

A poll by the Chartered Institute of Personnel and Development found that out of 2,000 firms, a little over 1/3 planned to trim headcount in response. Others expect to hold back on expansion or cut hours, as paying higher taxes could eat into profits.

Some small enterprises speak on rising wage bills too. Minimum pay levels are set to climb, boosting outgoings further. Larger employers might weather the higher bills with fewer adjustments, but smaller operators predict serious downsizing.

 

Is Confidence Declining Among Smaller Enterprises?

 

According to the Federation of Small Business, optimism reached a 10 year low at the end of last year, excluding the pandemic period. Owners blame a series of cost pressures, with rising taxation listed among the biggest threats.

A number of owners are already ditching growth plans. Some mention pausing recruitment or streamlining operations. Others hope the Employment Allowance increase, from £5,000 to £10,500, will provide some relief, though it may not fully absorb the extra charges.

Chancellor Rachel Reeves says the economy needs money for public services. That plan may strengthen healthcare, but many owners are uneasy about narrower margins.

 

Purbeck Insurance Services’ 5 Tips For Startups

 

To manage the impact of increased NIC contributions from April 2025, the UK insurance provider has given the following tips:

1. “Higher pricing – review current pricing arrangements to bake in the additional costs on a contribution basis to ensure that margins are not adversely impacted by the increases in NICs.

2. “Enhance remunerations structures – offer more flexible benefits in lieu of salary – for example, enhanced pension contributions and changes to holiday allocations.

3. “Consider salary sacrifice benefit schemes – implement schemes where the employee’s salary reduces in exchange for an employee benefit. For example, electric cars, qualifying workplace nursery, cycle to work schemes etc. This can also deliver an income tax saving for employees and enhance employee satisfaction.

4. “Investment in training and development – investigate the cost of enhancing or upskilling employees to improve productivity within the business, or repurposing staff to achieve more with existing resources.

5. “Use the Enhanced Employment Allowance – this will rise from £5,000 to £10,500 per year. This allowance offsets NIC liabilities, effectively neutralising the impact of the rate increase for many eligible SMEs.”

 

Experts Share NIC Rise Impact On Startups

 

Experts have shared their thoughts on how they see this rise impacting startups in the UK…

 

Our Experts:

 
Todd Davison, Managing Director, Purbeck Insurance Services
Michael Queenan, CEO and Co-Founder, Nephos Technologies
Benjamin Craig, Associate Director of R&D Incentives, Ayming UK
Matt Collingwood, Founder & Managing Director, VIQU IT Recruitment
Luke Shipley, Co-Founder and CEO, Zinc
George Holmes, Managing Director, Aurora Capital
Daniel Scholfield, Managing Director, Expert Security UK
 

Todd Davison, Managing Director, Purbeck Insurance Services

 

 

“It is encouraging that the number of corporate insolvencies in 2024 was down 5% compared to 2023[i], but it’s what lies ahead that is really concerning small and medium sized businesses. Many SMEs including startups are naturally worried about the impending cost increases and will be looking to make savings where they can.

“Rather than resorting to measures such as cutting staff though, firms can take proactive steps now to empower themselves and face the challenging times ahead with greater confidence.”

 

Michael Queenan, CEO and Co-Founder, Nephos Technologies

 

 

“By increasing employer National Insurance contributions, the government is turning off the very tap it desperately needs to turn on. Small businesses are the lifeline of this country. The government needs private enterprises to create job opportunities and drive economic growth and prosperity that the UK needs to get out of the debt it is in. Instead, they are penalising and isolating them. For businesses with small margins, how are they supposed to survive?

“There is also no longer incentive for entrepreneurs to start a business in the UK. In today’s globalised world we’re competing with wealthy countries who are offering 0% corporation tax, 0% income tax, and 0% capital gains tax. The government is killing ambition and chasing out the few entrepreneurs that are left in the UK.”

 

 

Benjamin Craig, Associate Director of R&D Incentives, Ayming UK

 

 

“Despite the recent fractional rise in GDP, there is still real pressure on the Government to demonstrate its commitment towards helping businesses scale and innovate. SMEs are the lifeblood of the UK economy, but many are struggling to absorb the impact of tax burdens like the National Insurance hike.

“On face value, many of the Chancellor’s recently announced measures are smart and sensible. The widely anticipated pension fund reforms, for example, will allow the Government to invest trapped surplus funds into businesses and infrastructure, helping to create a more dynamic economy. However, unlocking capital is only the first step. The real question is how investment will be deployed, and whether the government has a plan to support innovation in the long run.

“A crucial aspect of the Government’s success will be its ability to channel funds into areas that can enhance productivity. Directing funds to key areas like STEM skills development and supporting important innovating sectors such as manufacturing and green tech can boost the UK’s competitiveness and kickstart growth.”

“With our own research showing that many businesses are now prioritising survival over innovation, we need to see more collaboration with businesses to truly understand their pain points and what they need to grow.”

 

Matt Collingwood, Founder & Managing Director, VIQU IT Recruitment

 

 

“With the further rising of employer costs, such as increased NICs, it will become harder for start ups to absorb these costs.

“In my talks with start up leaders, many are already finding it less financially viable to hire a UK-based team for their organisation and instead are looking into offshoring work abroad. One start up I know, the founder has chosen to have 90% of his product development and testing done in Vietnam instead of the UK. Others have chosen to delay or avoid hiring staff, at great risk to their operations and growth.

“I would like to see the government remove employer’s NICs for start ups. If this policy were applied for the first two years of trading, with the condition that the savings be reinvested into job creation, it would help generate more jobs and opportunities.”

 

Luke Shipley, co-founder and CEO, Zinc

 

 

“Increasing National Insurance Contributions is a huge blow to UK startup-land, and early-stage and rapidly scaling businesses will be impacted the most. Labour has presented itself as a pro-business party, and to hold this position it’s critical for their policies to encourage entrepreneurship and enable businesses to retain the best talent. This added tax is doing the opposite.

“It is somewhat a relief that other entrepreneur-first policies such as R&D investment remain untouched, and it is vital for this to remain if the UK hopes to be a hotspot for innovation and entrepreneurial prowess.”

 

George Holmes, Managing Direct, Aurora Capital

 

 

“The upcoming rise in employer NICs is yet another hurdle for UK startups at a time when many are already facing tight cash flow and rising operational costs.

“For businesses just starting out, every additional expense counts, and a higher tax on employing staff risks slowing down hiring, restricting growth, and putting further pressure on founders trying to scale sustainably.

“Unlike established businesses, most startups lack any financial cushion to absorb these extra costs. Many are reliant on external funding or reinvesting revenue, so higher employment taxes could force difficult choices, whether that’s delaying new hires, cutting back on salaries, or shifting resources away from investment and innovation.

“This change reinforces the need for better-targeted support for startups, including access to affordable finance and tax incentives that encourage job creation rather than stifling it. If the government is serious about driving economic growth, it must ensure that startups are not left at a disadvantage.”

 

Daniel Scholfield, Managing Director, Expert Security UK

 

 

“The main challenges for startups happening off the back of the NI tax rise are mainly surrounding financial planning and cost management. For the employers themselves, the NI increase means higher costs associated with employing staff, which is tricky when startup budgets are strained at the best of ties.

“The higher tax burden on wages – especially those who earn above the tax thresholds – could also result in reduced cash flow and tighter profit margins, meaning there’s less money available for reinvesting into the business or to cover other operational costs.

“For the employees, the rise in NI contributions means lower take-home pay, which could potentially impact their morale and therefore retention. This is particularly important for startups that rely on motivated and dedicated people to go above and beyond. In order to offset the rise, freelancers and contractors – who are often key to startups – may increase their rates, meaning employers are out of pocket even more.

“It’s consequences like this that could push startups to re-evaluate their compensation structure and explore alternative, potentially tax-efficient methods, such as divided benefits. Startups everywhere will be starting to reassess their financial strategies to find tax-efficient solutions and adapt their business operations in order to maximise growth and profitability.”