Nov 26 2024

Understanding the Autumn 2024 Budget’s Impact on Employers’ National Insurance Contributions

The Autumn 2024 UK Budget brought important changes to National Insurance contributions (NIC) for employers, marking a shift that will affect businesses of all sizes. Chancellor Rachel Reeves delivered these measures with the aim of addressing fiscal needs while providing targeted relief for smaller businesses.

In this blog, we explore the changes in detail and consider what these financial adjustments mean for employers, both in terms of costs and potential benefits.

Key Changes to Employers’ NIC

From April 2025, employers will face an increase in National Insurance rates, a reduction in the earnings threshold, and a boost to the Employment Allowance, designed to ease the burden for smaller businesses. Here are the key details:

Increase in Employers’ NIC Rate
The employers’ NIC rate will rise from 13.8% to 15%, a 1.2 percentage point increase that aims to raise substantial revenue for the Treasury—approximately £25 billion annually. This increase applies to Class 1 secondary contributions, covering both regular employee earnings and benefits-in-kind (Class 1A and Class 1B NICs).
Reduction in the Earnings Threshold
The threshold at which employers begin to pay NIC has been reduced from £9,100 to £5,000 annually. This change means employers will start paying contributions on a lower level of earnings, effectively widening the tax base and increasing NIC costs for many businesses.
Enhanced Employment Allowance
To counterbalance the increase, the Employment Allowance will rise from £5,000 to £10,500. Additionally, the allowance will be expanded to include all employers, removing the prior restriction that limited eligibility to businesses with less than £100,000 in annual NIC liabilities. This adjustment represents a meaningful reduction in NIC obligations for small to medium-sized enterprises (SMEs), potentially eliminating NIC costs entirely for some.

NIC Category	Previous Rate (2024-25)	New Rate (Effective April 2025)
Class 1 Secondary NICs (Employers’ contributions)	13.8%	15%
Class 1A NICs (Benefits-in-Kind)	13.8%	15%
Class 1B NICs (PAYE Settlement Agreements)	13.8%	15%

Practical Implications for Employers

The increase in NIC rates and reduction in the threshold means that many employers will see a significant rise in their NIC obligations. Below, we look at how these changes will affect businesses and what steps employers can take to prepare:

For businesses, especially SMEs, the increased NIC rate could strain budgets. Employers may need to adjust payroll budgets to accommodate these changes and, in some cases, consider alternative employment models to manage costs effectively. Budgeting for these increased expenses well in advance can help mitigate unexpected financial pressures.

The combined effect of a lower threshold and higher NIC rate increases the cost of each employee for businesses. This rise may prompt some employers to rethink their hiring plans or seek ways to optimise workforce efficiency to absorb the additional expense.

The increase and expansion of the Employment Allowance could provide critical relief for eligible employers. For smaller businesses, this allowance could offset a significant portion, if not all, of their NIC liabilities, enabling them to maintain their workforce levels without incurring additional NIC costs. Employers should ensure they claim this allowance if eligible, as it may make a substantial difference in their overall NIC obligations.

Employers providing benefits-in-kind will also see an increase in Class 1A and Class 1B NIC rates. This change means that companies offering perks such as company cars or health insurance will need to budget for higher associated NIC costs. Considering alternative, tax-efficient benefits options may help employers control these expenses.

Employers’ NIC – Who Benefits and Who Bears the Cost?

While the Employment Allowance increase offers a reprieve for smaller employers, larger businesses with higher payrolls may face considerable cost increases. According to industry analysts, this measure will protect smaller companies from NIC increases, with over half of employers anticipated to benefit from either no change or an overall reduction in NIC payments. However, mid-sized and larger companies without access to the enhanced allowance may find themselves bearing the bulk of the cost burden under the new structure.

Strategic Considerations for Employers

Navigating the recent changes to Employers’ National Insurance Contributions requires thoughtful planning and a proactive approach. As the increased NIC rates and lowered thresholds come into effect, consider exploring these considerations and practical steps to adapt to the new NIC landscape.

Review Workforce Structure
Given the increased NIC costs, some employers may reconsider the structure of their workforce, potentially increasing reliance on part-time staff, freelance contractors, or outsourced roles to manage the additional costs.
Incorporate Salary Sacrifice Arrangements
Salary sacrifice arrangements can be a viable strategy to reduce NIC liability. Employers can lower taxable earnings by allowing employees to receive part of their remuneration as non-cash benefits, reducing the overall NIC contribution required. However, ensuring such arrangements comply with regulatory standards is essential to avoid unintended tax implications.
Evaluate Benefits Packages
With the increase in Class 1A and Class 1B NICs, now is an opportune time for employers to review their benefits offerings. Adjusting benefits packages, especially those subject to NIC can help control overall costs without sacrificing employee satisfaction. Employers may also consider offering benefits that do not attract NIC, such as pension contributions, as part of a balanced remuneration package.

Looking Ahead: Preparing for April 2025

The Autumn 2024 Budget’s changes to employers’ NIC reflect the government’s commitment to addressing fiscal pressures, but they also bring new challenges for businesses. Here are some practical steps for employers as they prepare for the new NIC structure when it comes into force in 2025:

Stay Updated on Legislative Changes: NIC and tax legislation are constantly evolving. Employers should stay informed on the latest updates to ensure compliance and take advantage of any new tax reliefs or allowances introduced.
Consult with a Financial Advisor: For businesses anticipating a significant increase in NIC liabilities, seeking guidance from a financial advisor can be beneficial. Advisors can offer insights into effective tax planning, optimise payroll costs, and suggest strategic approaches to manage the financial impact.
Implement Internal Training on Payroll Changes: Employers with larger payroll teams may find it helpful to provide training on the new NIC requirements. Ensuring payroll staff understand the changes can help avoid errors and ensure that NIC obligations are met accurately.

Navigating Employers’ NIC Changes

The Autumn 2024 Budget’s adjustments to employers’ NIC are a balancing act, with relief for smaller employers and increased obligations for larger firms. While the enhanced Employment Allowance offers some offset, many businesses will need to plan carefully to absorb the rising costs associated with NIC. By reviewing workforce structures, optimising benefits, and staying informed on tax developments, employers can mitigate some of the impacts of these changes.

If your business needs support navigating the new NIC requirements, the team at Jan McDermott is here to help. Our experienced advisors can provide the insights and strategies you need to manage these changes effectively and ensure compliance. Contact us today to learn more about our services and how we can support your business.