Company can’t afford the increase in employer National Insurance Contributions

Understanding the rise in National Insurance for company directors

The increase to employer National Insurance Contributions (NICs) is piling yet more pressure on businesses, and for some, this could prove to be one increase too many.

For those companies already struggling, this rise in the cost of employing staff may simply be unaffordable. For company directors already facing cash flow issues, rising payroll costs could be the final blow, increasing the risk of insolvency.

How is National Insurance increasing for businesses?

From April 2025, businesses are required to pay higher National Insurance Contributions on behalf of their employees.

Announced at the 2024 Budget, changes to employer National Insurance includes a 1.2 percentage point increase in the NIC rate to 15%, along with a reduction in the earnings threshold from £9,100 to £5,000.

For struggling businesses, this means higher employment costs, leaving limited company directors with tough decisions to make when it comes to how this additional cost will be absorbed.

For some, this increase in HMRC tax obligations will mean any future recruitment plans will be paused, while other companies will be left with no other choice but to pass this increase onto their customers.

“After submitting my '60 Second Test' I received a complimentary Insolvency Options guide packed full of useful information. The team of insolvency specialists phoned me back in less than 10 minutes after reviewing my details and guided me through the next steps. Really helpful! Thank you Sophie!”

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Sophie Schofield
Business Debt Expert

What can I do if I cannot afford the National Insurance increase?

For the many businesses which are already feeling the squeeze, this additional amount due to HMRC could push the company towards insolvency. If your business is facing mounting debts and cash flow problems, it is vital that you take action as soon as possible by enlisting the help of a licensed insolvency practitioner to better understand your options.

As the director of a limited company, you have a number of legal responsibilities that you must adhere to. One of these is to place the interests of your creditors above those of yourself and your fellow directors as soon as you know the company is insolvent. This is to prevent creditors from suffering any further financial losses. Failure to do this could see you become personally liable for some of the company’s debts.

By contacting an insolvency practitioner at the early signs of insolvency, you are demonstrating your desire to comply with these legal responsibilities.

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What are the options for a company who cannot afford National Insurance?

While this is a situation no company wants to find itself in, the good news is that there are a range of formal insolvency processes designed to help directors facing these types of challenges.

• Restructuring options

Depending on the overall financial position of the business, it may be possible to enter into formal negotiations with creditors – including HMRC – in order to free up some cash flow which would allow the company to afford the National Insurance increase. This can be done via a legally binding insolvency process known as a Company Voluntary Arrangement (CVA).

A CVA functions as a repayment plan which is entered into by an indebted company and its creditors. Any unaffordable debt is typically written off as part of the process, with the rest being repaid via a series of affordable monthly repayments over a set period of time (typically 3-5 years).

While you will still be required to pay the increased National Insurance costs to HMRC, a CVA can help a company to absorb these costs by restructuring existing financial commitments.

• Closure options

For some companies, however, the increase in National Insurance will be one cost increase too many. If company debts and outgoings have reached the stage where rescue is not possible, you may need to consider liquidating the business.

Liquidation can be entered into voluntarily by a company director by way of a Creditors’ Voluntary Liquidation (CVL). As part of this process, all assets belonging to the company will be sold, with the proceeds used to repay creditors as far as possible. Any debt which remains outstanding at this point will be written off (unless personally guaranteed). The company will be struck off the Companies House register and will cease to exist as a legal entity.

How Real Business Rescue can help

For company directors struggling with the increase in National Insurance, the licensed insolvency practitioners at Real Business Rescue are here to help.

We will take the time to understand your situation, before helping you understand the various options available to you and your company. We will then recommend the most appropriate course of action and work alongside you to put this in place. Contact the team today to see how we can help.