Employment

National Insurance contributions

Employees

For 2026/27 the rates of Class 1 employee NICs are 8% and 2%. The employer rate is 15%.

The Secondary Threshold is the point at which employers become liable to pay NICs on an individual employee's earnings and is currently set at £5,000 a year for 2026/27. The government has announced that this will be maintained at this level until April 2031.

The Employment Allowance allows eligible businesses with employer NICs bills to deduct £10,500 from their employer NICs bill.

The self-employed

For 2026/27 the rates of Class 4 self-employed NICs are 6% and 2%.

For Class 2 NICs from 6 April 2026:

• Self-employed people with profits of £7,105 and above get access to contributory benefits, including the State Pension, through a National Insurance Credit, without paying Class 2 NICs.
• Those with profits under £7,105 may pay Class 2 NICs voluntarily to get access to contributory benefits, including the State Pension. The rate of Class 2 contributions will be £3.65 per week

Employer NICs relief for veterans

The government will extend the employer NICs relief for employers hiring qualifying veterans to April 2028.

This means that businesses continue to pay no employer NICs up to annual earnings of the Veterans Upper Secondary Threshold of £50,270 for the first year of a veteran's employment in a civilian role.

National Living Wage and National Minimum Wage

The government has announced increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from 1 April 2026.

The rates which will apply are as follows:

The apprenticeship rate applies to apprentices under 19 or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.

Taxable benefits for company cars

The rates of tax for company cars are amended for 2026/27:

• the charge for zero emission cars rises from 3% to 4%
• the charge for other cars with emissions below 75g/km increases by 1%
• the maximum charge of 37% remains.

The government has confirmed increases to the benefit in kind rates for company cars for tax years up to and including 2029/30.

The government announced that it is introducing a temporary easement to mitigate the increasing benefit in kind tax liabilities of plug-in hybrid electric vehicle (PHEV) company cars due to new emission standards. The easement will apply retrospectively from 1 January 2025 to 5 April 2028. Transitional arrangements will apply to certain PHEVs until 5 April 2031.

Car fuel benefit charge

The government will increase the car fuel benefit charge from 6 April 2026 to £29,200.

Company vans

The government will increase the Van Benefit Charge and the Van Fuel Benefit Charges from 6 April 2026 to £4,170 and £798 respectively.  

Mandating the reporting of benefits in kind via payroll software

The government has confirmed that the use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2027. This will apply to Income Tax and Class 1A NICs.

Changes to salary sacrifice for pensions from April 2029

The government is changing how salary sacrifice for pension contributions works.

Salary sacrifice is when you agree to reduce your gross salary or sacrifice a bonus and, in return, your employer pays the same amount into your pension.

From April 2029, only the first £2,000 of employee pension contributions through salary sacrifice each year will be exempt from NICs. Contributions through salary sacrifice, like all pension contributions, will still be exempt from Income Tax (subject to the usual limits).

Employers and employees can still make contributions above £2,000 through salary sacrifice arrangements. However, employee contributions above this amount will be subject to employer and employee NICs like other employee workplace pension contributions.

Employers will need to report the total amount sacrificed through their existing payroll. All employer pension contributions will continue to be free of NICs.

Employees who choose to salary sacrifice to maintain eligibility for Tax Free Childcare or minimise the High Income Child Benefit Charge can keep doing so.

Comment

The changes to salary sacrifice lack detail but what is clear is that employers are likely to pick up another large National Insurance increase from 2029.

Those businesses are going to be able to quantify the financial effect now and, on top of rises in both the NMW and employers' National Insurance, it will be interesting to see the effect on recruitment, etc. over the next few years.

Bear in mind that affected employees will also see a rise in their National Insurance contributions, which would appear to be an increase for 'working people'.

Rather strangely, the Income Tax reliefs available on pension contributions are retained in full for both employers and employees.

It is widely acknowledged that many employees do not save enough for their retirement. This change does not seem likely to encourage employers or employees to contribute more to pension pots.