As April 2025 approaches, employers across the UK are preparing for significant updates to National Insurance Contributions (NICs). These changes, announced in the Autumn 2024 Budget, aim to address public finance challenges while providing targeted support for smaller businesses. Here's a breakdown of what you need to know:
Key Changes to Employers' NICs
- Increase in the NIC Rate: The secondary Class 1 NIC rate for employers will rise from 13.8% to 15%. This means employers will contribute a higher percentage of their employees' earnings above the threshold.
- Reduction in the Secondary Threshold: The earnings threshold at which employers start paying NICs will decrease from £9,100 per year to £5,000. This change broadens the scope of earnings subject to NICs, impacting payroll costs for many businesses.
- Enhanced Employment Allowance: To support smaller businesses, the Employment Allowance will increase from £5,000 to £10,500 annually. This allowance offsets employers' NIC liabilities, providing relief to eligible businesses.
- Removal of the £100,000 Eligibility Cap: Previously, businesses with NIC liabilities exceeding £100,000 in the prior tax year were ineligible for the Employment Allowance. From April 2025, this restriction will be lifted, allowing more businesses to benefit.
Implications for Employers
These changes will have varying impacts depending on the size and structure of your business:
- Increased Payroll Costs: The higher NIC rate and lower threshold mean employers will face increased contributions for each employee earning above £5,000 annually. This will significantly affect businesses who have part time employees. It also comes at the same time as an increase in the National Minimum Wage.
- Relief for Smaller Businesses: The enhanced Employment Allowance offers significant support, particularly for small and medium-sized enterprises (SMEs), by reducing their NIC liabilities.
- Administrative Adjustments: Employers will need to update payroll systems to reflect the new rates and thresholds, ensuring compliance with HMRC requirements.
Preparing for the Transition
To navigate these changes effectively, consider the following steps:
- Review Payroll Budgets: Assess the financial impact of the increased NIC rate and lower threshold on your business.
- Maximise Employment Allowance: Ensure your business meets the eligibility criteria to take full advantage of the increased allowance.
- Communicate with Employees: While these changes primarily affect employers, transparency with your workforce about payroll adjustments can foster trust and understanding.
For more detailed information, please see here.
N. Goddard
19.3.25
Please note: posts were written at a specific time and reflect the rules in place at that time, which may no longer be relevant. Furthermore, the posts are generic in nature. We cannot accept any responsibility for any losses in respect of actions taken on the strength of this generic advice. We would advise you to seek up to date advice which is relevant to your circumstances.
