During the recent Autumn Budget, The Chancellor, Rachel Reeves, announced a series of significant changes to National Insurance that are set to take effect as of the 6th of April 2025.
Snapshot Summary
Recent changes to National Insurance (NI) will impact businesses significantly, especially small and medium enterprises (SMEs). The employer NI rate will rise from 13.8% to 15%, and the earnings threshold will drop from £9,100 to £5,000. To help offset costs, the Employment Allowance will increase from £5,000 to £10,500. Additionally, in April 2025, the National Living Wage will rise to £12.21 per hour, and the National Minimum Wage will increase to £10 per hour.
During the recent Autumn Budget, The Chancellor, Rachel Reeves, announced a series of significant changes to National Insurance…
The three main changes are:
- Increase in employers National Insurance rates from 13.8% to 155se in employers National Insurance rates from 13.8% to 15%.
- The threshold on employee earnings at which NI applies will drop from £9,100 to £5,000.
- The Employment Allowance will increase from £5,000 to £10,500.
The most significant change is the increase in National Insurance employer contributions, which will rise from the current rate of 13.8% to a new rate of 15%. This 1.2% increase represents a substantial financial impact for businesses, as it will raise the costs associated with employing staff.
In addition to the increase in employer contributions, the government is also implementing a reduction in the threshold at which National Insurance contributions begin. Previously set at £9,100 the threshold will now be lowered to £5,000.
These changes are likely to negatively impact business costs, potentially affecting hiring practices and overall wage structures. Employers will need to carefully evaluate their budgets and may need to consider adjusting their strategies to accommodate these increased Employment costs.
The rise of employer contributions from 13.8% to 15% will affect all businesses, however, it will put a particular strain on SMEs as it will increase their payroll expenses. To help mitigate these costs for businesses, the government has increased the employment allowance from £5000 to £10500, this appears to now include all businesses, rather than being for anyone with a class 1a NIC annual liability of less than £100k. This change will help offset some of the liability for National Insurance contributions.
From a payroll perspective, there are some further considerations for 2025. The National Living Wage (NLW) (payable to those aged 21 and over) will increase to £12.21 per hour (6.7% increase), and the National Minimum Wage (NMW) (payable to those aged 18-20) will increase to £10 per hour (16-18% increase). These changes will also take effect from April 2025.
It is crucial to ensure that you have planned ahead and carefully considered these additional costs in your budgets for 2025. It is important to not only include these additional costs in your expense budgets but also ensure that you take it further and profile out a full financial plan, including a balance sheet forecast and cash flow view; don’t just stop at a profit and loss budget. We also recommend mapping out the next 3-5 years on your full financial plan, so you have some clear direction and set some key financial goals across the whole business. For more information on planning for next year, we go into more detail in this article here.
The Government implemented these National Insurance changes as a way to fund essential public services, however, the changes will present challenges for business owners as they navigate the rise in employment expenses, therefore it is crucial you plan ahead.
To help you prepare and plan for these upcoming changes to National Insurance, we have put together a calculator that allows you to input the gross annual staff salaries (including taxable benefits) and will show you the increased annual cost impact of the changes. To download the free calculator, please fill out the form below:
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For more information on how we can help you and your business, feel free to reach out to us via email or phone and we will be happy to advise on the best solutions for your business.
Please note: This article is provided for information only and was correct as at time of writing (14/11/24). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.
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