It’s only two months until the new tax year starts…and Rachel Reeves starts pinching your profits with the increase in Employers NI.
I’m a great believer that there’s no use moaning about anything that any Government comes up with – it’s on us as business owners to crack on and find a solution. However, that might need a little planning for your business, so it’s worth reminding you of what’s happening in April so that you’re ready for it.
To recap, what did Rachel from Accounts (a nickname that I think should be taken as a compliment) announce in the Budget a few months ago? In a nutshell:
- Increase in Employer National Insurance Contributions (NICs): From April 2025, the Employer NIC rate will rise from 13.8% to 15%, and the Secondary Threshold will decrease from £9,100 to £5,000. This means employers will pay NICs on more of each employee’s earnings, and pay NICs at a higher rate – a double whammy.
- Enhanced Employment Allowance: To offset the NIC increase for smaller businesses, the Employment Allowance will increase from £5,000 to £10,500, and the £100,000 eligibility threshold will be removed.
OK, so what does it mean in hard cash? Here are some examples:
| No of employees | Salary per Employee | Net NIC increase/(saving) |
| 5 | £20,000 | (£1,771) |
| 10 | £20,000 | £1,958 |
| 20 | £20,000 | £9,416 |
| 40 | £20,000 | £24,332 |
| 5 | £30,000 | (£1,171) |
| 10 | £30,000 | £3,158 |
| 20 | £30,000 | £11,816 |
| 40 | £30,000 | £24,132 |
So, a small business might make a saving, but larger businesses pay more.
But…not all businesses are equal. Two businesses might have the same overall wages bill but be affected very differently.
A restaurant with 40 staff earning £20k each will have an increase of £24,332 as shown above. But an office with 20 people earning £40k will only see an increase of £9,216. And that’s despite having the same gross wages bill of £800k.
Why? Because every single person is hit by the lower threshold => the more people, the more hits!
When will I feel the pain?
Most businesses won’t feel the financial pain for the first few months due to getting the first £10,500 “free”. April will seem cheap compared to March as the allowance starts, but you need to be ready for the increase.
What can I do about it?
A few simple (but important) steps can help you minimise the damage:
- Review your pricing: Small tweaks to your fees or charges can offset the extra NI cost.
- Consider a salary sacrifice scheme. With salary sacrifice, an employee ‘sacrifices’ part of their salary in exchange for an employer-funded benefit. Their gross pay then goes down for National Insurance and tax calculations, so you’ll pay less Employer’s NI.
- Forecast your cashflow: Factor in the higher NI when planning. Better to know now than be caught short in a few months.
And how about Directors’ pay?
Many Directors of SMEs take a small salary up to the Ers NI threshold (circa £758 per month) and then take the rest as dividends. The new rates might mean a change to around £415 per month to stay under the threshold, but it does depend on your business and its circumstances, eg whether you’re using the full Employment Allowance. Therefore, talk to your accountant!
If you’re worried – or simply not sure how the new rates affect your business – please do get in touch. We can crunch the numbers, see exactly how much more you’ll be forking out, and suggest smart ways to handle the increase.
If you have any questions, please hit “reply” or give us a ring on 0151 380 8084.
Many thanks
Jon