Key National Insurance changes for Employers

Author: IAN PARSONS, MANAGING PARTNER at Parsons, Chartered Accountants

The Autumn Budget 2024 introduced significant changes to the National Insurance system which will impact employers from 6 April 2025. These changes could lead to higher costs for businesses. Here is a breakdown of the key updates and potential implications.

Lower Threshold for Employer NICs

One of the major changes is the reduction in the secondary threshold for National Insurance contributions. Employers will be required to make NICs at a lower level of earnings, with the following adjustments:

• The secondary threshold will be reduced from £9,100 per year to £5,000 per year, starting in April 2025.
• From 5 April 2028, this threshold will be linked to the Consumer Price Index (CPI).

For an employee earning more than £9,100 per year this is an additional cost of £615 per employee.

Increase in Contribution Rates

Alongside the change in the threshold, there will be an increase in the rate of employer NICs. The rate for secondary Class 1 NICs will rise from 13.8% to 15%. The increase impacts Class 1A contributions payable on benefits in kind, and Class 1B NICs payable on PAYE Settlement Agreements, which also rise to 15%.

Increase in the Employment Allowance

The new rates and thresholds may represent a significant increase in costs for employers, especially when taken alongside the new minimum wage rates in force from April 2025:

• The Employment Allowance (EA) rises from £5,000 per year to £10,500 from 6 April 2025.
• Eligible employers can offset the EA against their NICs liability, potentially reducing it to nil.
• It will no longer be necessary to have had an employer secondary Class 1 NICs liability of £100,000 or less in the previous tax year to claim.
• The EA is not available to single director companies where the director is the only paid above the secondary threshold.

Overall, this means that an employer with 7 or more employees earning the new minimum wage on a 40-hour week will be worse off and will be an extra £810 a year worse off per additional employee.

Managing NICs Costs with Salary Sacrifice

In most cases, the tax advantage of salary sacrifice arrangements has been removed in recent years. However, with pension contributions and certain other benefits, advantages remain. As employer NICs bills rise, remuneration packages that manage NICs costs by using salary sacrifice become very attractive options. We can help you assess your remuneration strategies.

Parsons is here to help with your planning and strategic adjustments. For guidance on how these changes will affect your business and to explore ways to optimise your NICs strategy, contact us for a consultation on 01924 669 500 or via email at info@parsons.co.uk.