The recent Autumn Budget, presented by Chancellor Rachel Reeves, has introduced significant changes to Employers National Insurance (NI) contributions. These changes will have a substantial impact on businesses of all sizes, particularly affecting payroll costs and budgeting for the next financial year.

Now’s the time for business owners to ensure they’re clear on what these Employers National Insurance changes mean to them for the year ahead. Let’s take a look…

Key changes

The Chancellor announced two major alterations to Employers NI:

1. The Employers NI rate will increase from 13.8% to 15% starting 1 April 2025.

2. The threshold at which employers begin paying NI on each employee’s salary will decrease from £9,100 per year to £5,000.

These changes could result in a significant increase in payroll costs for many businesses.

Mitigating measures

To offset the impact of these changes, especially on smaller businesses, the government has introduced some counterbalancing measures:

1. The Employment Allowance will be increased from £5,000 to £10,500.

2. The £100,000 eligibility threshold for the Employment Allowance will be removed, allowing all eligible employers to benefit.

According to the Chancellor, these measures mean that ‘865,000 employers won’t pay any National Insurance at all next year and over 1 million will pay the same or less than they did previously’.

What impact will the changes have?

Small Businesses

For small businesses, the increased Employment Allowance could potentially offset the rise in Employers NI. For instance, an employer with four full-time employees (35 hours per week) at the National Living Wage rate will not have to pay NI on their wages.

Larger Businesses

Larger businesses will benefit from the removal of the £100,000 eligibility threshold for the Employment Allowance. This means that all qualifying employers, regardless of size, can reduce their NI liability by £10,500.

Preparing for the changes

These changes will come into effect from April 2025, so businesses have time to prepare. 

Here are some practical steps to consider:

1. Review your payroll: Analyse your current payroll structure and calculate the impact of these changes on your business.

2. Budget planning: Factor in the increased NI costs when planning your headcount and budgeting for the next financial year. If you need help with this, please get in touch.

3. Explore salary sacrifice schemes: These can help reduce your NI liability by lowering employees’ taxable pay. See more here.

4. Consider the Employment Allowance: Make sure you’re claiming this if you’re eligible, as it could significantly reduce your NI bill.

5. Ask for help: If you’re unsure about how these changes will affect your business, speak to your payroll provider or get in touch!

Conclusion…

In the build-up to the Budget, Employers National Insurance changes were widely touted as being the Chancellor’s preferred measure for raising extra Treasury funds. The reality wasn’t quite as bad as it might’ve been, which cynics may suggest is why we all heard about a ‘worst case scenario’ in advance of the actual announcement.

These changes will however present major challenges to some businesses, but the increased Employment Allowance and removal of the eligibility threshold provide some relief.

It’s crucial for business owners to understand these changes though and plan accordingly to manage the impact of the changes for their circumstances.

Remember, if you need any help around how these changes will affect your business or your payroll and budgets for the year ahead, please get in touch. We’re very happy to help.