Time is running out to make sure your business is prepared for the impact of the increased Employer National Insurance Contribution (NIC) rate set to take effect in April 2025.

The Chancellor, Rachel Reeves, announced the change in the Autumn Budget last year as part of the Government’s strategy to generate money for the Treasury.

What’s changing?

Multiple changes were announced including:

• Rate increase –The NIC rate for employers rises to 15 per cent, an increase of 1.2 per cent.
• Lower earnings threshold reduced – Employers will now be required to pay NI on earnings from £5,000, considerably narrowing the exemption threshold.
• Employment Allowance increase –The Employment Allowance, which provides some relief on NI costs, doubles to £10,500 offering support for many small businesses, especially those with fewer employees.

Each of these will apply from 1 April 2025.

How will my business be impacted?

The full impact of these changes will vary from company to company.

For instance, for an employee on a gross salary of £35,000, the employer will experience an increase of £926 in National Insurance costs for that employee each year.

This will mean that the total cost of employing somebody on this salary will increase from £38,574 in 2024/25 to £39,500 in the 2025/26 tax year.

For a small business, these extra costs may be challenging, however, the Employment Allowance increase may provide you with some relief.

For example, if your business employs five employees earning £35,000 each, you will not see an increase in the Employer’s NI.

With an additional £926 per employee, multiplied by five employees, totalling £4,630, this increase is fully offset by the added £5,500 Employment Allowance.

However, larger businesses that employ 50 people at the same salary, will likely see a significant rise in salary costs with an approximate additional £46,300 NI contribution required.

This adjustment raises the total wage bill from £1,928,700 to £1,975,000 before applying any reliefs.

To understand exactly how your business would be impacted, we recommend that you speak to your accountant for personalised advice.

What can you do to prepare for the changes to Employer NI?

There is still some time to prepare for the incoming increases, but it will require adjusting your business strategy.

Have you reviewed your payroll budget yet? If the answer is no, that’s one of the first steps you should take as your budget may need amending to account for the additional NI fees.

Once you have accounted for these changes, it will show you how much extra funding you’ll need to generate or save elsewhere.

This may be through introducing new revenue streams, optimising your business costs by removing subscriptions you no longer use, or even streamlining operational processes to improve efficiency.

Additionally, consider whether salary sacrifice schemes or other tax-efficient employee benefits could help manage costs while still supporting your team.

It’s also worth keeping your employees informed. Transparency about how these changes might impact the business can foster trust and understanding, especially if adjustments to budgets or benefits are necessary.

Lastly, consult with your accountant for professional financial advice. At TWP Chartered Accountants, we have the expertise and experience to help you navigate these changes and identify areas where your business can be effectively adapted.

Get in touch with us today for tailored support in managing the Employer National Insurance rate increases.