Employer National Insurance & Corporation Tax: What You Can Deduct
Employer National Insurance Contributions (NICs) are one of the largest costs for companies with employees. The good news: they're fully deductible for Corporation Tax purposes.
Employer NIC Rates (2025/26)
| Category | Rate | Threshold |
|---|---|---|
| Standard (Category A) | 15% | Above £5,000/year per employee |
| Under 21 (Category M) | 0% | Up to £50,270/year |
| Apprentices under 25 (Category H) | 0% | Up to £50,270/year |
The employer NIC rate increased from 13.8% to 15% from April 2025, and the threshold dropped from £9,100 to £5,000.
Corporation Tax Deduction
Employer NICs are a trading expense — deducted from your profits before calculating Corporation Tax.
Example
| Item | Amount |
|---|---|
| Revenue | £500,000 |
| Staff salaries | £200,000 |
| Employer NICs (15% above threshold) | £27,000 |
| Other expenses | £100,000 |
| Taxable profit | £173,000 |
Without the NIC deduction, your taxable profit would be £200,000 — costing an extra £6,750 in Corporation Tax at 25%.
Employment Allowance
Small businesses can claim Employment Allowance — a £10,500 reduction in your employer NIC bill (2025/26). From April 2025, there is no longer a prior-year NIC cap on eligibility — almost all employers now qualify regardless of how much employer NIC they paid previously.
Important exception: companies where the only paid employee is a sole director do not qualify for Employment Allowance.
Employment Allowance reduces the employer NIC you actually pay, and it's that reduced amount you deduct for Corporation Tax purposes. If Employment Allowance wipes out your NIC bill entirely, there is no employer NIC expense to deduct.
Director's Salary: Optimal Level
For owner-managed companies, the optimal director's salary for 2025/26 is a balancing act:
| Salary Level | Employee NIC | Employer NIC | Personal Income Tax | CT Saving (25%) | Net Benefit |
|---|---|---|---|---|---|
| £12,570 (PA) | £0 | £1,135 | £0 | £3,426 | +£2,291 |
| £5,000 (NIC threshold) | £0 | £0 | £0 | £1,250 | +£1,250 |
| £50,270 (higher rate) | £3,016 | £6,791 | £7,540 | £14,265 | −£3,082 |
Personal Income Tax column assumes basic-rate taxpayer (20% on income above the £12,570 personal allowance). Net Benefit = CT Saving − Employee NIC − Employer NIC − Personal Income Tax.
The optimal level depends on your specific situation — but for most single-director companies, a salary of £12,570 (the Personal Allowance) is the sweet spot: no employee NIC, no income tax, and the employer NIC cost is more than recovered through the Corporation Tax deduction. The apparent higher net benefit of a £50,270 salary disappears once personal income tax is included.
What's Deductible?
All employer costs related to employees are deductible:
- ✅ Employer NICs
- ✅ Employer pension contributions
- ✅ Apprenticeship Levy (0.5% for pay bills over £3M)
- ✅ Training costs
- ✅ Recruitment costs
- ✅ Employee benefits (where taxable via P11D)
CT600 Reporting
Employer NICs aren't reported separately on the CT600 — they're part of your total expenses deducted from revenue to arrive at the tax-adjusted trading profit figure entered at Box 155.
However, your tax computation (iXBRL attachment) should itemise staff costs, which includes:
- Gross salaries and wages
- Employer NICs
- Employer pension contributions
PAYE vs Corporation Tax: Different Systems
| PAYE/NIC | Corporation Tax | |
|---|---|---|
| Filed with | HMRC (RTI) | HMRC (CT600) |
| Frequency | Monthly/quarterly | Annually |
| What's reported | Employee pay, tax, NICs | Company profits and tax |
| Deadline | 19th of following month | 12 months after period end |
You file PAYE returns throughout the year (Real Time Information), and then the employer NIC total flows into your annual CT600 as a deductible expense.
Filing your CT600? Use Taxpipe — £59, we calculate your Corporation Tax including all deductible expenses.