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The Autumn Budget saw a raft of changes introduced as the new Labour Government outlined their strategy for the UK economy. The policies announced by Chancellor Rachel Reeves will have a far reaching impact on the self-employed and small businesses, including those that have employees.
Through these changes, and others announced in the Budget, the Government aims to increase funding for various state benefits, generate revenue for the NHS and ease the pressure on public finances, as well as promote growth for small businesses and incentivise employment.
Prominent amongst the changes were updates to Employers NI which the Government expects to generate an additional £25bn tax revenue annually. Employers NI costs can have a significant impact on small businesses, especially those operating on tight margins, and some of the changes announced have not been well received.
In this post we’ll explore the main Employers NI changes and how they could impact small businesses.
The Latest Employers NI Changes
Employers NIC Rate Raise
The rate of Employers NICs will be increased by 1.2 percentage points from 13.8% to 15% effective from 6th April 2025 meaning employers will pay more NICs for every employee.
Employers NIC Secondary Threshold Reduced
The Employers NIC secondary threshold is the point at which Employers NICs must be paid on an employee’s salary. This earnings threshold will be reduced from £9,100 to £5,000 per annum at the start of the 2025/26 tax year.
Employment Allowance Increasing
The Employment Allowance is a benefit that reduces Employers NIC liabilities and the threshold will be increased from the current £5,000 to £10,500. This means that qualifying businesses can deduct up to an additional £5,500 from their Employers NIC bills which will provide some welcome relief with less businesses liable for Employers NICs. It’s expected that this change will primarily benefit smaller businesses with almost 900,000 businesses not having to pay any Employers NICs in the next tax year and around 1,000,000 paying the same amount or less.
Employment Allowance Eligibility Widened
Effective from the start of the 2025/26 tax year, the £100,000 eligibility threshold for Employment Allowance will be removed. Historically the Employment Allowance benefit was only available for businesses paying less that £100,000 in Employers NICs but the removal of this threshold means all employers will qualify for the relief irrespective of their size.
Changes to the National Living Wage and Minimum Wage
In addition to the various Employers NI changes, the National Minimum Wage payable to employees aged between 18 and 20 will be increased to £10.00 an hour and the National Living Wage will increase to £12.21 per hour for employees aged 21 or over effective from 6th April 2025.
The Impact of the Employers NI Changes on Small Businesses
The impact of the Employers NI changes will vary from business to business dependent on their specific circumstances. Businesses with a lot of employees on minimum wage will face an increase in both wages and Employers NICs which will have to be carefully budgeted for, but this increase can be offset by the increased Employment Allowance. Certain sectors such as hospitality and leisure will be the most affected.
In many cases the Employers NIC rate raise, the reduction of the Employers NIC Secondary Threshold and increases to the National Minimum and Living wages will equate to increased outgoings for employers in terms of their tax liability and also potentially the wages they pay. Employers will therefore focus on cost cutting to mitigate this increase and might also freeze pay increases or shelve recruitment plans. Alternatively, some may explore salary sacrifice pensions to reduce their Employers NIC liability.
Conversely, smaller businesses with just 1 or 2 employees might be better off thanks to the increased Employment Allowance reducing their Employers NICs.
Updates to tax regulations present a degree of challenge in terms of compliance and the Employers NI changes are no different. Employers need to understand the changes, ensure they are taking advantage of any exemptions and allowances, that payroll systems are in order and that accurate and timely Employers NIC payments are made in-line with the new rules.
Tips for Small Businesses to Mitigate The Changes
Carefully Consider Employment Strategies
It’s likely that many small businesses will implement an employment freeze as a result of the forthcoming employers NI changes but certain reliefs and exemptions are available. Employers will pay 0% NICs for eligible apprentices under the age of 25 and NIC exemptions may be available when employing veterans in their first year of civilian employment or when taking on employees in designated freeport areas.
Ensure Your Payroll System Is Compliant
All employers must make sure that their payroll system is adjusted to take account of the new Employers NIC rates, the updated thresholds and exemptions. There is still time before the changes are implemented at the start of the 2025/26 tax year but it’s always a good idea to prepare early. Accuracy is essential to ensure compliance so the correct amount of Employers NICs are paid and penalties are avoided.
Get Professional Help
It will likely be challenging for many businesses to navigate the Employers NI changes, especially so for smaller businesses. Working with an expert accountant is a good idea to ensure that your business remains compliant with its NIC obligations once the changes come into effect.
Small Business Accounting With Gorilla
The impact of the Employers NI changes will be mixed and businesses will be affected in different ways depending on their unique circumstances. The Employers NI changes emphasize the importance of good financial management and one thing that remains consistent is the positive impact of appointing an accountant.
From an Employers NI perspective, an accountant will ensure that you claim all available reliefs to minimise your liability, that you’re compliant with your Employers NI obligations and that your payroll is accurate. As part of our accounting service, we provide preparation and submission of payroll for up to 2 employees.
In addition, all your business and personal accounting needs will be expertly managed by your own dedicated accountant. They will be on hand to provide unlimited support and advice including optimising your tax position which could mitigate any potential NIC increases.
Industry-standard FreeAgent accounting software is included and a same working day response to your queries is guaranteed when you contact us before 3pm.
Contact us today to learn more about how the Employers NI changes could affect your business and our accounting service and get an instant quote here.
