As the first Budget from the new Labour government, which has been vocal about the difficulty of filling a ‘fiscal black hole’ left by the previous Conservative government, the October 2024 Budget introduced some tough changes for employers.
The cost of employer National Insurance Contributions (NICs) will see a significant increase in April 2025, alongside increases to the National Minimum Wage and National Living Wage intended to combat inflation outstripping wage rises.
So, if you’re a UK employer, what can you expect and how might this affect your business?
Employer NICs going up
From 6th April 2025, the employer NIC rate will go up from 13.8% to 15%, with the annual starting threshold dropping from £9,100 to £5,100.
As an example, if an employee is earning £50,000 a year, the cost of employer NICs will be just over £1,100 higher for the 2025–2026 tax year.
The 15% rate will also affect employers providing taxable benefits (e.g. medical cover) to employees.
The lower £5,000 threshold will remain in place for 3 years until 5th April 2028, impacting employers who hire large numbers of lower earners.
However, the employment allowance that enables employers to reduce their NIC liability is increasing from £5,000 to £10,500, which is good news for smaller employers.
The current restriction of withdrawing this allowance if the employer’s NICs were over £100,000 in the previous year will also be removed.
An employer can hire up to four full-time workers earning the National Living Wage without an NIC cost, but any employers hiring more staff than this will be cautious with recruitment.
National Minimum/Living Wage rises
Following high increases to the National Minimum Wage and National Living Wage in 2024, these hourly rates will increase substantially from 1st April 2025:
- Employees aged 21 years old and above will receive a 7% boost to £12.21 an hour
- Workers between 18 and 21 years old will receive a 3% increase to £10 an hour
- Apprentices and staff under 18 years old will receive an 18% increase to £7.55 an hour
Younger workers will benefit the most, with the increase equating to £1,400 a year for a full-time employee aged 21 or over and over £2,500 a year for an 18 to 20 year old.
Employees will obviously welcome this uplift, but for many employers, the additional cost will be a struggle – especially for businesses in the hospitality sector.
Employees will welcome the uplift, but many employers will struggle with the additional cost; especially those in the hospitality sector.
You can find out more about National Minimum Wage rates on the government website.
Need help with business accounts?
Are you a concerned employer worrying about how the rising costs of employer NICs and the National Minimum/Living Wage will affect your business in the next tax year and beyond?
At gbac, we don’t just offer payroll services to keep accounts, NICs, and pension contributions up to date. Our accountants in Barnsley also provide a range of financial services, including VAT bookkeeping and tax consultancy services to ensure you maximise your tax reliefs.
To learn more about how our accounting services could help your business adapt to changing regulations, get in touch by calling 01226 298 298 or emailing info@gbac.co.uk.