Impacts Of The New Employers' National Insurance Rates
How will they affect your business?
Posted by Roger Eddowes on 07/11/2024 @ 8:00AM
On the heels of the recent Budget announcement, employers across the country are bracing themselves for considerable changes to National Insurance contributions ...
As the implementation date for National Insurance approaches, businesses are encouraged to prepare!
From April 2025, the landscape of employers' class 1 NIC will be reshaped by an increase in the contribution rate from 13.8% to 15%. Furthermore, the secondary threshold, currently set at £9,100 per year, will be dramatically lowered to just £5,000 annually, or £96 per week.
"This move signifies a substantial rise in liabilities for employers!"
The government anticipates that these changes will generate an impressive £25 billion in additional revenue annually. However, experts warn that such a significant increment may not come without repercussions.
The Office of Budget Responsibility has pointed to a possible trickle-down effect, suggesting it could curb wage increases for employees as companies strive to manage their increased NIC obligations. As a result, workers might find their earnings stagnating amidst rising costs.
To alleviate some pressure on smaller enterprises, the Budget announced a rise in the employment allowance from £5,000 to £10,500 per year, effective from the 6th of April 2025. This allowance means eligible employers can reduce their NIC liability, by up to £10,500. Notably, the previous restriction that limited eligibility to those with an employers' NIC liability of £100,000 or less will be removed, broadening access to the allowance significantly.
Meanwhile, changes will also affect classes 1A and 1B NIC, which represent contributions on the value of benefits provided to employees. From April 2025, the rate for these classes will also climb to 15%. Legislation introduced in the Budget indicates that reporting of benefit-in-kind will become mandatory through payroll software from April 2026. This legislation aims to simplify and standardise reporting processes, but may create additional resource burdens for businesses in the short term.
Another issue on the horizon is the increased incentive for businesses to treat workers as self-employed or contract staff to sidestep higher NIC costs. This trend could exacerbate the ongoing challenge of employment status arbitrage, where the classification of workers affects their tax responsibilities!
Overall, the anticipated changes to National Insurance contributions present both challenges and somewhat of an opportunity for UK employers. Navigating this new landscape requires strategic foresight and adaptive planning.
As the implementation date approaches, businesses are encouraged to prepare not just for increased costs, but also for the wider implications on employee relations and overall workforce health.
Ultimately, understanding these shifts can empower businesses to thrive rather than merely survive in the evolving fiscal climate.
Until next time ...
ROGER EDDOWES Business Godparent
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about the changes to employers' national insurance, it could be a great idea to call me on 01908 774320 and let's see how I can help.
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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