The government announced a massive employer’s national insurance increase in the October 2024 Budget.
They set out three changes to employer’s National Insurance Contributions (NICs) to take effect from April 6, 2025:
The net revenue expected to be raised by these changes is predicted to be just under £24 billion in 2025-26 rising to just under £26 billion in 2029-30.
According to a research briefing in the House of Commons Library, HMRC expects the changes to impact 1.2m employers:
Which are you?
The two changes are that NICs become payable on ALL earnings above £5,000 rather than above £9,100 AND the rate of NICs is increasing from 13.8% to 15%.
For someone on a monthly payroll, NICs at 15% will apply to earnings above £417.67 compared with 13.8% on earnings above £758.33.
This example for a lower-paid employee will affect industries such as hospitality in which there are many lower-paid, part-time employees.
Essentially, the employer’s national insurance increase means every employee earning over £5,000 will be more expensive for the employer from April 6, 2025.
The Employment Allowance is a rebate of employers’ NICs up to a level of £10,500 (previously £5,000) which means that IF YOUR BUSINESS IS ELIGIBLE:
Check eligibility and, in particular, note that you cannot claim if your company has just one director and that director is the only employee liable for employer’s NIC.
That said, what does it look like when the Employment Allowance is factored in?
This employer with an annual payroll cost of £290,000 is only paying £1k more in employer’s NICs.
This employer, a bit smaller than the first example, is actually better off because the increase in the Employment Allowance is greater than the increase in employer’s NICs.
Because this company is not eligible to claim the Employment Allowance the employer’s national insurance increase means a higher employer’s NIC cost.
This is a massive increase in tax and most of the burden will fall on large employers.
Every employee earning over £5,000 will be more expensive for the employer from April 6, 2025, which makes sense if £24bn is to be raised every year.
However, for many employers the increase in employer’s NICs will be modest. Even in the example above where the payroll cost is almost £300k, the employer is only paying £1k more.
Some smaller employers will be better off but single-director companies may be worse off.
Many more employers will see no change because the Employment Allowance they can claim is greater than the employer’s NIC cost they incur.
Employers facing a higher employer’s NIC cost will pay less corporation tax if their profits fall as a result and vice versa.
The cashflow effect is that the Employment Allowance will last longer into the tax year than it used to but single-director companies will start to pay the employer’s NICs earlier in the tax year than previously.
Because the increase in the rate and the lowering of the earnings threshold work in the opposite direction to the increase in the Employment Allowance, the devil is in the detail when it comes to calculating whether your business is better or worse off and by how much.
Increasing costs of employment don’t stop with the increase in employer’s NICs. In April there are also significant uplifts to the National Living Wage and National Minimum Wage which employers need to be aware of.
Small print:
Much to think about and the devil really is in the detail. It all makes 2025-26 that bit more tricky to navigate even if your business will benefit from these changes.
Can we help you and your business as the year goes by?
Let’s have a free-of-charge chat about your business – call Michael Austin on 020 7125 0270 or email info@bluedotconsulting.co.uk
Michael
National Living Wage and National Minimum Wage increase – April 2025
Business growth – the financial essentials
Chartered Accountants – Bedford House, Fulham Green, London, SW6 3JW
We don’t believe in forms, we believe in talking to people, finding out your needs and tailor-making a solution just for you.
Give us a ring on 020 7125 0270 or email us at info@bluedotconsulting.co.uk
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