The Chancellor confirmed today that from 6 April 2025 employer National Insurance Contributions (NIC) will be increased by 1.2% and the threshold from which employer NIC becomes due has been reduced to £5,000. It was also announced that from the same date the national minimum wage would be increased to £12.21.
Alexander Simpson, Partner at professional services group Evelyn Partners comments:
“The increases in employers’ NIC and the National Living Wage announced today deliver a significant uplift in the costs of employing staff. Some businesses may now think twice about taking on additional employees as a result of these changes and this might pose risks for the continued growth of the UK economy.
“Increasing the National Minimum Wage by an above inflation rate, plus higher employer NICs comes at difficult time for many businesses, particularly those that have grappled with rising costs and reduced consumer demand following the pandemic. In extreme circumstances, the changes could push some businesses to close. Businesses need to take review their budgets and plan for higher costs.”
Employer NIC increase
Alexander Simpson comments: “The impact of a 1.2% increase in the employer NIC rate will be significant for many businesses. An employer with an annual wage bill of £5,000,000 across 100 employees would currently have an employer NIC liability of approximately £564,000. From April 2025, employer NIC costs in this example will rise to approximately £664,500.
“Class 1 employer NIC is a significant source of revenue for the Government and the Government estimates that the changes to employer NIC will generate an additional £23.7bn in 2025/26.
“However, smaller businesses will welcome the increase of the Employment Allowance from £5.000 to £10,500 to reduce increased NIC bills.
“Following this announcement businesses should plan for pay rises for employees for 2025 and beyond. Employers should also review their benefit offering to ensure that they are getting value-for-money in light of this increase to the overall cost of the provision of benefits. The structure of benefits should also be reviewed to ensure that exemptions that are available, from both income tax and NIC, are being captured.
“Notably, an opportunity may arise for employers to offset some of this cost through the use of a salary sacrifice pension scheme including bonus sacrifice where not already in place.”
National minimum wage increase
Alexander Simpson added: “Increasing the National Living Wage to £12.21 compounds the impact of the increase in the employer NIC rate for employees receiving a pay rise as a result of the change.
“NMW compliance is more complicated than simply paying the headline rate. There are a number of complications and technicalities which can cause employers to fall foul of the legislation and potentially be ‘named and shamed’. There is currently a significant amount of HMRC compliance activity in this area, so businesses should take advice to ensure they are prepared for the changes.”
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