The Chancellor of the Exchequer, Rachel Reeves MP, presented her Autumn Budget to Parliament on Wednesday 30 October 2024. Within it, she announced several significant changes to employer National Insurance contributions.
As an employer, you may have questions about how this will apply to you, what you need to do, and what it will mean for your business going forward. In this post, we will share everything you need to know.
What are the changes to National Insurance in the 2024 budget?
There are three main changes to employer National Insurance contributions in the 2024 budget:
- The National Insurance rate will increase by 1.2 percentage points, from 13.8% to 15%
- The threshold on employee earnings at which National Insurance applies will drop from £9,100 to £5,000
- The Employment Allowance has increased to £10,500. This means that eligible employers will be able to reduce their NI liability by up to that amount (previously £5,000.)
When will these changes take effect?
These changes will come into force at the beginning of the new financial year in April 2025.
How will this impact my business?
If you employ people, it is likely that your National Insurance liability will increase from next April due to these changes. Large businesses, with many employees and large payroll bills, will be the most impacted but small businesses with small numbers of employees are also likely to feel the effects.
For a full-time minimum wage worker, the increase in NI liability will be around £770 per year. And for a full-time worker on the median salary of £33,000, the liability will increase by around £900 per year.
You may need to adjust your budget, allocating additional funds or cutting spending elsewhere to account for this increase in costs.
How will this impact my employees?
The government has stated that it does not intend to increase taxes for working people. This means that there will be no increases to basic, higher or additional rates of income tax, individuals’ National Insurance contributions (NICs), or VAT. However, Reeves also stated that the thresholds at which income tax becomes payable will be frozen instead of increasing in line with inflation. In real terms, this means that more people will be liable to pay income tax or to pay taxes at a higher rate even though the rates themselves remain the same.
The National Insurance changes primarily impact employers. However, employees may experience indirect or knock-on effects such as reduced benefits and fewer opportunities for pay rises. Those looking for work may also be impacted by a more volatile jobs market and changes to hiring practices in the short term.
Are there any ways to offset these costs?
Some small businesses will be able to benefit from the increased Employment Allowance, offsetting some of these cost increases.
There are also a number of other strategies you may want to consider to help offset these costs. Not all strategies will be right for all businesses, so you should consider carefully what will work for you.
Some of your possible options include:
- Institute a hiring freeze, meaning that you do not bring in any new employees
- Freeze your pay rates or pay bands
- Increase the price of your products or services to bring in more money
- Take steps to increase productivity and output to bring in more money
- Institute remote working to lower or eliminate the cost of physical premises
- Take advantage of salary sacrifice
What is Salary Sacrifice and how does it work?
Salary Sacrifice (sometimes called “salary exchange”) is a government-supported scheme in which an employee can choose to exchange a part of their pre-tax salary for non-cash benefits. This results in a lower National Insurance liability for both the employee and the employer.
Salary sacrifice is a win-win for you and your employees. Your employees will keep more of the money they earn as well as enjoying valuable benefits such as:
- Increased employer pension contributions
- Saving money on a bike and cycling accessories with a “cycle to work” scheme
- Paying for mobile phones, laptops, and other technology
- Purchasing or leasing a vehicle more affordably
- Free or reduced-cost access to wellness benefits such as gym membership and health screenings
- Insurance products such as life insurance, health or dental insurance, or travel insurance
There are numerous Salary Sacrifice schemes to choose from, so you will need to do your research to decide which one(s) will be best for you and your employees.
Where can I find additional support?
Understanding the nuances of the new National Insurance system and how it will impact you can be complex. If your organisation has a finance team, it is their job to understand this and to make the best decisions for your business in light of these changes. If you do not have a dedicated finance team or individual, we recommend contacting your accountant for personalised advice.
Here are a few resources you may find useful in learning more about these changes and what they mean for you:
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