Changes to Employer National Insurance Contributions NICS

Following Labours first Budget, there are some important updates regarding employer national insurance contributions (NICs) and how the government plans to support small businesses during these changes.

What’s Changing?

To counteract the recent 1.2% increase in employer NICs to 15%, the government is increasing the employment allowance from £5,000 to £10,500. This change also removes the £100,000 threshold, meaning all eligible employers can benefit from the higher allowance.

Starting April 2025, employers with NIC liabilities over £100,000 in the previous tax year will still be able to claim the full £10,500, as confirmed by Treasury policy costings. This change is expected to help around 865,000 employers avoid paying any NICs next year, providing significant relief as they navigate increased costs.

Why This Matters

This adjustment aims to partially offset the rising employer NICs and the decrease in the per-employee threshold from £9,100 to £5,000, effective from April 6, 2025. This threshold will continue to rise in line with the Consumer Price Index starting in 2028-29.

Craig Beaumont from the Federation of Small Businesses (FSB) welcomed this substantial increase in the employment allowance, stating it puts more money back into the hands of small employers by reducing the “jobs tax.” He sees this as a positive step, especially in a budget that raises overall taxes, signaling that small businesses will receive support to grow and hire.

Budgeting for Increased Costs

Despite the increase in the employment allowance, businesses will still need to adjust their budgets for the higher employment costs. The recent above-inflation rise in the national living wage by 6.7% adds another layer of financial consideration for employers.

The combination of the national minimum wage increase and higher NICs—along with a reduced threshold—will significantly impact businesses and many companies might struggle to pass these costs on to customers, potentially leading to job cuts or limited pay increases for employees. While the increased employment allowance provides some relief, many small business owners might still feel the pinch from this first Labour Budget.

Compliance Considerations

While the increase in the employment allowance is largely seen as a positive move, Taxwatch raised concerns about compliance risks. The potential for businesses to split payrolls could complicate HMRC’s efforts to tackle avoidance, so it’s essential for employers to stay vigilant.

Looking Ahead

In summary, while the government’s increase in the employment allowance offers some much-needed support to small businesses, rising employment costs and the impact of wage increases will require careful financial planning. If you have any questions about how these changes might affect your business or need assistance with budgeting, please don’t hesitate to reach out to us. We’re here to help you navigate these changes!