Budget 2024: employers national insurance up 1.2% – In a tax raising Budget, the Chancellor Rachel Reeves increased employers’ national insurance by 1.2% to 15% from April 2025
In addition, the secondary threshold will be cut from £9,100 to £5,000 which will see higher payments for employers as more staff become liable for NI payments.
This measure will raise an eye-watering £23.8bn in the 2025-26 tax year alone, filling the initial fiscal hole identified by Reeves when Labour came to power in July.
The rise in employers’ NI will come into effect in April 2025 giving employers time to budget for the increases. However, it will affect the majority of businesses with an unavoidable charge on all PAYE employees.
However, there will be some relief for smaller businesses with an increase in the employment allowance from £5,000 to £10,000 from April 2025.
NI rates were last at this level in 2022, when the employer element was increased to 15.05% from April 2022, although this was short-lived as the Mini Budget saw this hike overturned.
There is a double hit on employers as a result of changes to employers’ NICs. The increase in headline Class 1 Secondary rate from 13.8% to 15.0% from 6 April 2024 is only an 8.7% increase per se, but coupled with a reduction in the secondary threshold means an actual increase of 25% contribution in respect of an average £36,000 earner.
One of the big advantages of the employer increase is that it requires little administrative costs to make the changes both at businesses and HMRC, but it will be costly.
The 1.2% increase in employers’ national insurance is designed to generate immediate revenues without directly increasing taxes on individual workers in theory.
However, it represents a complex challenge for businesses as they grapple with higher payroll costs. It’s also a technical change that many people won’t have a full understanding of so will not cause the kind of furore that upping income tax might have.
Calculations show given the secondary threshold has dropped dramatically to £5,000 if an employee’s gross pay is £30,000 then an employer will see a £865.80 increase in their national insurance costs for that employee.
The total cost to employ someone on £30,000 will now be £33,750 compared to £32,884.20 under the previous rules. If a business wanted to keep their cost to that latter number than an employee’s gross salary would have to drop to £29,247.
There are questions about whether growth ambitions will be stunted by the increase.
The increase makes it more expensive for businesses to hire staff and is inconsistent with an agenda for economic growth.
But there is a small silver lining, It should be remembered that employers national insurance is tax deductible and therefore most companies will only suffer an effective increase of 0.9%, however that will be sufficient to impact corporate investment decisions.
The rise will put further pressure on businesses facing a mix of challenges.
The increase to the employer’s NIC will place a further financial burden on UK business against a backdrop of increasing costs of borrowing and inflationary rises in supply chains already in place.
These additional employment liabilities will undoubtedly result in operational reductions to right size financial performance or a further increase in the costs of products or services as costs are passed on which in turn affects growth plans.
There’s a small silver lining for business owners who are in the process of claiming research and development tax relief, as their increased employer national insurance contributions will count towards their qualifying costs.
This means that the R&D element of staff costs claimed will increase. This extra cost will also form part of the PAYE cap for loss making entities, which will extend the maximum a loss making company can receive as a cash credit.