Employer NIC: Corporation Tax Deduction Guide
Every time your limited company pays a salary — to you as director or to employees — it triggers employer National Insurance contributions (NIC). The good news: employer NIC is a fully allowable expense for corporation tax.
This guide explains how employer NIC works, current rates, the Employment Allowance, and how it all flows through to your CT600.
What Is Employer NIC?
Employer NIC is a tax your company pays on top of gross salaries. It's separate from the employee NIC deducted from wages.
Think of it as a tax on employing people. If you pay a director a salary of £50,000, the company doesn't just pay £50,000 — it pays that salary plus employer NIC on top.
Key distinction
- Employee NIC — deducted from the employee's pay (reduces their take-home)
- Employer NIC — paid by the company in addition to the salary (increases the company's cost)
Both are collected through PAYE, but they're different costs borne by different parties.
Employer NIC Rates 2025/26
From April 2025, the employer NIC rate is 15% on earnings above the secondary threshold.
| Threshold | 2025/26 Amount |
|---|---|
| Secondary threshold (per employee) | £5,000 per year |
| Rate above threshold | 15% |
| Upper limit | No cap — employer NIC has no upper earnings limit |
What this means in practice
For a director's salary of £12,570 (the personal allowance):
- Earnings above secondary threshold: £12,570 - £5,000 = £7,570
- Employer NIC: £7,570 × 15% = £1,135.50
- Total cost to company: £12,570 + £1,135.50 = £13,705.50
For a salary of £50,270 (higher rate threshold):
- Earnings above secondary threshold: £50,270 - £5,000 = £45,270
- Employer NIC: £45,270 × 15% = £6,790.50
- Total cost to company: £50,270 + £6,790.50 = £57,060.50
No upper limit: Unlike employee NIC (which drops to 2% above the upper earnings limit), employer NIC stays at 15% with no cap. The higher the salary, the higher the employer NIC — indefinitely.
Is Employer NIC Deductible for Corporation Tax?
Yes, fully deductible.
Employer NIC is an allowable expense that reduces your company's taxable profits. It's treated the same as any other employment cost.
Where it appears in accounts
Employer NIC is typically shown in your profit and loss account as part of staff costs or employment costs, alongside gross salaries and pension contributions.
In your CT600, employment costs (including employer NIC) are included in your computation of trading profits. There's no separate box for employer NIC — it's part of the overall expenses deducted from income.
The tax saving
At the 25% corporation tax rate, every £1,000 of employer NIC reduces your tax bill by £250.
At the 19% small profits rate, the saving is £190 per £1,000.
Employment Allowance: Reducing Your NIC Bill
The Employment Allowance lets eligible employers reduce their employer NIC liability by up to £10,500 per year (2025/26).
Who qualifies?
Most employers with employer NIC below £100,000 in the previous tax year. However, there's a critical exclusion:
Single-director companies are excluded. If the company's only employee is a director (no other staff), you cannot claim the Employment Allowance.
This catches most one-person limited companies. You need at least one additional employee paid above the secondary threshold.
If you qualify
The Employment Allowance is a direct reduction in the employer NIC you pay. It's claimed through your payroll software, not on your CT600.
Impact on corporation tax: If you claim the Employment Allowance, you have lower employer NIC costs. This means a smaller deduction for corporation tax. It's still better to claim the allowance — a £1 reduction in NIC saves you £1, whereas a £1 deduction saves only 19p-25p.
Employer NIC vs Pension Contributions
When planning director remuneration, pension contributions are often more tax-efficient than salary because they don't attract employer NIC.
Comparison: £10,000 extra remuneration
As salary:
| Item | Amount |
|---|---|
| Gross salary | £10,000 |
| Employer NIC (15%) | £1,500 |
| Total cost to company | £11,500 |
| Corporation tax saving (25%) | £2,875 |
| Net cost | £8,625 |
| Employee receives (after tax/NIC) | ~£6,800 |
As pension contribution:
| Item | Amount |
|---|---|
| Pension contribution | £10,000 |
| Employer NIC | £0 |
| Total cost to company | £10,000 |
| Corporation tax saving (25%) | £2,500 |
| Net cost | £7,500 |
| Value to director | £10,000 (in pension) |
The pension route saves the company £1,500 in employer NIC and £1,125 net after corporation tax relief.
Read more about pension contributions and corporation tax.
How to Calculate Employer NIC for Directors
Directors have special NIC rules. Unlike regular employees (who pay NIC each pay period), directors are assessed on an annual earnings period basis.
What this means
- Regular employee: NIC calculated each month/week against monthly/weekly thresholds
- Director: NIC calculated against the annual secondary threshold at year end
This simplifies things for directors paid irregularly (e.g., one annual bonus). The annual secondary threshold for 2025/26 is £5,000.
Cumulative method
Most payroll software uses the cumulative method for directors by default, which means:
- Each pay period, it calculates NIC on total earnings to date
- Compares against the cumulative threshold to date
- Deducts NIC already paid in previous periods
This means early in the year, a director might not trigger any employer NIC (earnings haven't exceeded the annual threshold). The NIC catches up as the year progresses.
Alternative annual method
Some payroll software lets you assess directors on the annual basis from the start, meaning all NIC is calculated and paid at year end. This is simpler for companies that pay directors once a year.
Employer NIC on Benefits in Kind
Employer NIC doesn't just apply to cash salaries. It also applies to most benefits in kind reported on form P11D:
- Company cars — employer Class 1A NIC at 15% on the benefit value
- Private medical insurance — 15% on the premium
- Beneficial loans — 15% on the benefit calculated at the official rate
Class 1A NIC is paid annually (by 22 July after the tax year) rather than through monthly PAYE. It's still a fully deductible expense for corporation tax.
Learn more about company cars and corporation tax.
Reducing Employer NIC Legally
1. Optimal salary strategy
Set director salaries at the NIC-optimal level — typically around the personal allowance or NIC primary threshold. Take the rest as dividends (no NIC) or pension contributions.
2. Pension contributions instead of salary
As shown above, pension contributions avoid employer NIC entirely.
3. Trivial benefits
Benefits worth £50 or less are exempt from tax and NIC (up to £300 per year for directors). Think gift vouchers, small presents, etc.
4. Claim the Employment Allowance
If you have more than one employee, make sure you're claiming the full £10,500 allowance.
5. Salary sacrifice schemes
Employees can sacrifice salary in exchange for pension contributions or other exempt benefits. This reduces the salary on which employer NIC is calculated.
6. Electric vehicle salary sacrifice
A particularly effective scheme: an employee sacrifices salary for a company electric vehicle with a 2% BIK rate. Both employee and employer save NIC on the sacrificed salary.
How Employer NIC Appears on Your CT600
Employer NIC isn't reported as a separate line on the CT600. Instead:
- Your profit and loss account includes employer NIC within staff costs
- Your tax computation starts from accounting profit (which already reflects NIC)
- There's no add-back or adjustment for employer NIC — it's a straightforward deduction
If you're filing with Taxpipe or other CT600 software, employer NIC is automatically included when you enter your employment costs.
Common Mistakes with Employer NIC
1. Forgetting employer NIC in cost projections
When budgeting for a new hire, add 15% to the gross salary for employer NIC. A £30,000 salary actually costs the company £33,750+.
2. Not claiming the Employment Allowance
If you're eligible, claim it. At £10,500, this can eliminate employer NIC for a small employer entirely.
3. Confusing employer and employee NIC
Employee NIC is the employee's problem (deducted from pay). Employer NIC is the company's cost. Both are deductible for corporation tax, but they're different amounts.
4. Missing the payment deadline
Employer NIC (along with PAYE and employee NIC) must be paid to HMRC by the 22nd of the following month (or 19th by cheque). Late payment incurs interest and penalties.
5. Ignoring NIC when comparing salary vs dividends
The salary vs dividends decision must factor in employer NIC. A salary that looks efficient before employer NIC might not be after adding 15% on top.
Frequently Asked Questions
Does a limited company pay employer NIC on director's salary?
Yes. If your limited company pays you a salary as director, the company must pay employer NIC at 15% on earnings above the £5,000 secondary threshold (2025/26). This is on top of your gross salary.
Is employer NIC an allowable expense for corporation tax?
Yes, fully deductible. Employer NIC reduces your taxable profits. At the 25% corporation tax rate, every £1,000 of employer NIC saves £250 in corporation tax.
Can a single-director company claim the Employment Allowance?
No. If your company's only employee is a director with no other staff, you're excluded from the Employment Allowance. You need at least one other employee.
How do I reduce employer NIC legally?
The most effective methods are: paying an optimal director salary (near the NIC threshold), making pension contributions instead of additional salary, and claiming the Employment Allowance if you have more than one employee.
What is the employer NIC rate for 2025/26?
The employer NIC rate is 15% on earnings above the secondary threshold of £5,000 per year. Unlike employee NIC, there's no upper earnings limit — 15% applies to all earnings above the threshold.
Do I pay employer NIC on dividends?
No. Dividends are not earnings and do not attract any National Insurance — employer or employee. This is one of the key advantages of the salary plus dividends strategy for director-shareholders.
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