Increase in employer NIC rates – Autumn Budget 2024

As part of the Autumn Budget 2024, it was announced that the Government will increase the rate of Employer’s National Insurance Contributions (NICs) from the current 13.8% to 15%. In addition, the secondary threshold, being the point at which employers begin to pay employer’s NIC on an employee’s salary, is being cut to £5,000 per annum from the current £9,100.

The changes will be effective from the 6 April 2025, the same time as an increase in the National Minimum Wage.

Employment Allowance

Some respite for businesses will be available by a proposed increase to the Employment Allowance, which is offset against employer NIC liabilities and effectively reduces an employer’s NIC liability by this amount. The allowance is being increased to £10,500 from the current £5,000 level from April 2025.

There will also be a relaxation of the eligibility rules so that larger businesses with employer NIC liabilities in excess of £100,000 in the previous tax year will now be able to claim the allowance. However, it would seem all other previous rules around claiming the allowance remain in place including the availability of one allowance for corporate groups and connected businesses as well as exemption to claims for public authorities and single director limited companies.

The changes mean that a business employing an employee at the average UK wage of £36,000 would pay an additional £938 per annum in employer NICs. Where the business employs 6 or more employees at this level, the benefits of the increased Employment Allowance will be nullified and lead to an increase in the total NICs payable.

The changes noted above would appear to target larger businesses more so than smaller ones, with the increase in the employment allowance expected to mean that approximately 865,000 employers do not pay NICs and more than half of employers with NIC liabilities no worse off in the next tax year.

However, an interesting point to note is that reviewing the NIC rate increase against the previously announced changes in the corporation tax rate (19% to 25%) would make the effective post-tax rate similar (11.18% against 11.25% respectively). Of course, non-corporate employers remain unaffected by this, and those businesses are likely to be the ones disproportionately affected by these changes.

Another sector of employers likely to be negatively impacted by these changes are those with high staff numbers but low average wage such as the hospitality and leisure sector, where a large amount of the workforce can be part time and/ or total remuneration is close to the thresholds, meaning increased employer NICs are now due.

The Chancellor is betting big on this measure plugging a large portion of the infamous ‘£22bn black hole’ inherited by the current government. Only time will tell whether this pans out with an increased tax take for the Treasury or whether it has the opposite impact with employers, and in turn employees feeling the squeeze by way of reduced recruitment activity and smaller pay increases in coming years.

Watch our Autumn Budget 2024 question time webinar

Following the Autumn Budget 2024, our panel of experts examined the announcements made by The Chancellor, discussing what these changes mean for you. They also answered questions from our live audience. This webinar is now available to watch on demand here.

Alternatively, if you would like any further information or guidance on this topic, get in touch with your usual Kreston Reeves contact or contact us here.