Currently employers pay National Insurance (NI) at 13.8% on salaries over £9,100. An employer with more than two employees generally benefits from an ‘employment allowance’ of £5,000 so no NI is paid until that cumulative liability has been breached.
From April 2025 the employer rate of National Insurance will increase by 1.2% to 15%. Furthermore, this rate of National Insurance will be applied to all earnings of more than £5,000 per employee (a significant reduction). To mitigate the effect for small businesses, the employer’s allowance will increase to £10,500. The allowance will be available for all eligible employers; it is currently not available when a company has an employer’s NI liability of over £100,000, but this cap will be removed.
Many small employers will not pay any National Insurance as a result, for example, a business employing four employees at the national living wage will pay no National Insurance. For an employer who has used up their Employment Allowance, an employee who earns £40,000 will cost a business approximately an additional £1,000 in Employers National Insurance than it does currently.
The biggest effects will be on medium to larger employers. Although not a tax on “working people”, they are likely to feel the impact as the additional cost to business may to curtail their ability to reward employees through commercial pay increases and/or bonuses. This strategy is predicted to raise up to £25 billion for the government.
Class 2 and Class 3 national insurance rates will also increase by 1.7%. Class 2 national insurance is typically paid by self-employed people and Class 3 is the higher rate of voluntary national insurance which is used to fill in gaps in state pension credits. The weekly amounts payable will be £3.50 and £17.75 respectively, and the annual lower earnings limit (the threshold at which state pension credits are applied will increase to £6,500.
If you have any questions about how the budget or its proposed reforms might affect you, do get in touch on 01242 776000 or tax@randall-payne.co.uk.
