The recent Budget brought significant employer NIC changes, which will affect employers from April 2025. Here’s a summary of the key changes:
- Secondary Threshold Reduction: The secondary threshold – the point at which employers start paying NICs – will drop from £9,100 to £5,000. However, the employee threshold remains at £12,570.
- Employer NICs Rate Increase: The rate for employer NICs will rise from 13.8% to 15.0%.
Employment Allowance Boost: The employment allowance, which acts as a credit for employer NICs, will increase from £5,000 to £10,500.
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The reduction in the secondary threshold has sparked concerns, particularly from businesses in the retail, leisure, and hospitality sectors. The cost of employing a part-time worker earning £175 per week will rise from nothing to £11.85 per week, before factoring in the 6.7% increase in the national living wage and double-digit rises for under-21s on the minimum wage.
Employer Reactions and Workforce Changes
According to the Office for Budget Responsibility (OBR), businesses are likely to adapt to the NICs changes in various ways, such as:
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- Limiting pay rises.
- Reducing employee hours.
- Cutting back on recruitment.
Additionally, there may be a rise in self-employment and the use of one-person companies as businesses look to manage costs. However, this approach has been the subject of ongoing legal and legislative scrutiny, particularly regarding the distinction between contractors and employees.
The Impact on Self-Employment and Incorporation
For self-employed individuals, the appeal of incorporating a business has diminished due to the rise in NICs and previous increases in dividend taxation. In many cases, taking dividends is now more costly than opting for a bonus as an owner-director.
Potential Benefits for Employees
Employees might see some indirect benefits from these changes. For example, employers may introduce or improve salary sacrifice schemes for pension contributions or electric vehicles. These schemes help reduce employer NICs, with some of the savings often passed on to employees.
If you’d like to discuss how these changes could impact your business or explore ways to mitigate additional costs, contact us today on 01423 727 334 or email [email protected]