Two announcements made in the final quarter of 2024 are likely to have a big impact on businesses in 2025.
Firstly, in October, as part of her Autumn Budget, The Chancellor, Rachel Reeves, announced changes to Employer National Insurance Contributions (NICs), alongside increases to the National Minimum Wage (NMW). It’s led to many businesses expressing concern about the impact that these changes might have when they come into effect this April.
This unease was heightened given the announcement that the latest figures show the UK economy failed to grow between the months of June and September last year, with some suggesting that this is heavily linked to the measures being introduced by the Chancellor.
As we start a new year, it’s important to prepare for these upcoming changes, building resilience to ensure your business is in a strong position for when they are rolled out in April. I have explained each one below, alongside the impact that they will have on your business.
What’s changing in April 2025?
The first two announcements to focus on are the changes to Employer National Insurance Contributions (NIC) and the level as which these now start.
Employer NIC Contribution
The current system sees employers pay 13.8% on a worker’s earnings, above £9,100 (although we’ll come back to that in the next section). The changes announced in the Budget will see this rate increase from 13.8% to 15%.
Employer Contributions start earlier
Also known as the Secondary Threshold, this is the amount when employers start paying towards an employee’s NI. Remember that £9,100 I mentioned earlier where employers start their NIC contributions? Well, that will also be changing.
The threshold will drop down to £5,000 which means employers will start paying contributions a lot earlier than they do now.
The impact
The combined impact of these two changes had the most people talking and when you calculate the numbers, it’s easy to see why.
If we take the average UK salary (£37,340), this will see the net monthly liability change from £324.76 in 2024-25, to £404.25 from April. Over the course of a year, this will see a rise of an additional £953.40 a year for that employee based on their salary staying the same.
Minimum wage increases
April will also see the government take on the Low Pay Commission’s (LPC) recommendation to increase the rate of National Minimum Wage (NMW). Whilst these increases also include Over 21s and Apprentices, the biggest change is for those aged under 21, who have seen the largest rise on record.
The impact
The visible impact of this will see hourly increases for the following:
- 21 and over – £12.21 an hour (previously £11.44)
- 18-20 – £10.00 an hour (previously 8.60)
- Under 18 and Apprentices – £7.55 an hour (previously £6.40)
However, the effect of this is two-fold, as the salary increase will also impact the NIC contributions highlighted previously, leading to a sense of double jeopardy for businesses.
Based on an over-21, working 40 hours per week, they will see their annual earnings increase from £23,795.20 to £25,396.80.
After this, your total tax liability from Employer NICs for that person would also raise from an original £2,027.94 to £3,059.51 from April.
So, for that one individual, you will be paying £2,633.17 more in April, than you would have been doing the previous year.
Employment Allowance increase
As part of the Budget, and to ease concerns for smaller businesses, it was also announced that the Employment Allowance, an initiative where employers can reduce their National Insurance liability, will be changed to reduce the tax burden on these types of businesses.
The impact
The allowance is currently £5,000 per year but this will increase to £10,500 per year from April.
Put simply, if your overall NIC bill for your business was £12,000, the allowance would cover the first £10,500, leaving you only needing to pay the £1,500 excess.
How to start preparing for these changes and the future
Looking at the impact, it’s not surprising that research, carried out by the British Chamber of Commerce has suggested that two-thirds of businesses are worried about their taxes following the measures, even if the Treasury assures that half of employers would see a cut or no change in their NI bills.
Building resilience within your business can ensure that, whilst these changes are felt, you are doing everything you need to ride out the storm and be in a stronger position as a result.
Want to build resilience in your business? Book on to our upcoming webinar
If any of the above changes have concerned you, or you’d like to hear more about how best to position your business to deal with these challenges, as well as any future ones, I’ll be hosting a webinar on Thursday 27 February which looks at strategies that you can implement to build resilience in your business.
This webinar would be perfect for those who:
- Want to learn more about strategies which you can undertake to not only build resilience in your business but take steps for it to thrive in the future.
- Are unsure of what the changes announced in the budget will mean for their business in the short, medium and longer term.
You can book your place via our event page.
