Background
This week in Muras Matters we will look in more detail at the changes to Employers National Insurance which were announced in the Budget 2024. From April 2025, the rate at which employers will pay national insurance contributions (NIC) on an employee’s earnings will increase from 13.8% to 15%. In addition the threshold at which employers NIC becomes payable will reduce.
To help smaller businesses with this increase in the rate of employers NIC it was also announced that the employment allowance will increase to £10,500 per year from April 2025.
Detail
Employers National Insurance
Currently, employers pay secondary class 1 NIC at the rate of 13.8% on the amount by which an employee’s earnings exceed the secondary threshold of £9,100 per year or £175 per week.
Following the Budget the rate of employers NIC will increase to 15% from April 2025. In addition, the threshold at which employers NIC starts to apply will be reduced to £5,000 per year or £96 per week. This threshold will continue to rise in line with the consumer price index (CPI) from 2028-29. These two changes are expected to significantly increase employers NIC liabilities for businesses and will hit businesses with lower paid or part time workers particularly hard. The following examples highlight the impact of the changes on a business.
Using an example of a payroll totalling £250,000 for a year highlights the impact in three different scenarios that the above changes will have on businesses and the need for business to plan ahead for the increased costs. The effect of the employment allowance has been ignored in these examples.
- 5 employees each earning £50,000: Currently, the total employers NIC cost for a tax year would be £28,220. Following the Budget announcement, this cost will increase from April 2025 to £33,750. This an increase of £5,530 or 19.6%.
- 10 employees each earning £25,000 per year: The current employers NIC cost amounts to £21,940. This annual cost will rise to £30,000 from April 2025, an increase of £8,060 or 36.7%.
- 20 employees each earning £12,500 per year: The current employers NIC cost amounts to £9,380. This annual cost will rise to £22,500 from April 2025, an increase of £13,120 or nearly 140%.
It should be remembered that employers national insurance is tax deductible and therefore for most companies the effective increase will be 0.9% rather than the full 1.2% increase.
Employment Allowance
To help support smaller businesses with these increases in employers NIC it was also announced that the employment allowance will be increased from the current £5,000 to £10,500 per year from 6 April 2025. Eligible employers are able to offset the employment allowance against their NIC liability, potentially reducing it to nil.
The other announcement in regard to the Employment Allowance was the removal of the £100,000 threshold, expanding the allowance to all eligible employers from April 2025. The removal of the employment allowance cap means employers with a prior tax year employers NIC liability of over £100,000 (but otherwise eligible) will be able to claim the full £10,500.
Benefits In Kind
Employers pay class 1A NIC on the value of some benefits provided and lump sum payments made to employees. Class 1B NICs are payable where the employer has a PAYE settlement agreement (PSA) in place with HM Revenue & Customs, so that the employer covers the tax and NIC costs that would otherwise be borne by the employee directly on certain benefits. Both of these NICs will also increase from the current 13.8% to 15% with effect from April 2025.
It has also been confirmed that the reporting of benefits in kind via payroll software will become mandatory from April 2026, with exception of employment related loans and accommodation given these can be difficult to value during the tax year.
We will continue with our look at announcements made in the Budget in more detail in Muras Matters over the coming weeks.
If you would like more information on any of the changes to employment NIC and the employment allowance, or how these changes may impact you, please speak to our Tax Director, Jenny Marks.
To see our other news items please visit our Muras Baker Jones – Blog.