Budget announcement

With all the hype before the event, it was no surprise that employers’ NI was the Budget’s main target for raising revenue. However, this was far more than just a rate increase, and the ramifications will cause ripples for years to come. 

Increase in rates

First off, from 6 April 2025, the rate of employers’ NI will increase from 13.8% to 15%. This rate applies to Class 1A NI, payable on benefits in kind, and Class 1B NI on PAYE settlement agreements.

Decrease in threshold

However, the real kick in the teeth for employers is the change to the point at which employers’ NI starts being payable from 6 April 2025. The current threshold of £175 per week (£9,100 p.a.) will decrease to just £96 per week (£5,000 p.a.). To put some flesh on this, for a worker on a £175 weekly wage, the change generates an additional charge on the employer of £615. On an average full-time salary of £35,000, the extra burden is £926 p.a.

Employment allowance

Cushioning the damage is the employment allowance (EA), which reduces the employer’s NI bill. From 6 April 2025, the EA increases to £10,500 p.a. Crucially, from the same date the EA is also made available to all eligible employers (irrespective of size) as the qualifying condition requiring an NI liability below £100,000 is removed. While the EA is a drop in the ocean for larger employers, it will at least offer much needed solace for smaller businesses and charities. There are many exclusions from the EA.

Even though employers’ NI is a tax-deductible cost it will hit business profits. Coupled with the statutory rise in the national minimum wage rates, this is a double whammy for smaller employers. While some may pass the costs to customers via increased prices, this won’t be possible for all employers.

Solutions

To pre-empt the NI hike, accrued bonuses should be paid before April 2025 if finances allow. For single director shareholder companies, extracting profit via dividends rather than salary will save employers’ NI. Going forward, future workforce budgets will need to incorporate the increased NI burden which may result in more modest pay rises. 

Salary sacrifice (optional remuneration arrangements) will save employers’ NI as the employee receives an alternative, such as pension contributions or free childcare, in lieu of a reduced salary.

To assist cash flow, the smallest employers, whose average monthly PAYE is below £1,500, can arrange to pay their PAYE/NI quarterly by phoning the Employer’s Helpline on 0300 200 3401.