Since the Budget announcement on 30th October 2024, concerns have been raised by the businesses and individuals who are affected by some of the key measures.
The biggest changes affecting small businesses are those to the employer National Insurance rate, the secondary threshold and the National Living and Minimum Wage. Read on to see how these might affect your business from April 2025.
A recap of the key announcements
The following changes will be introduced from April 2025.
- The rate of employers’ National Insurance Contributions NICs will increase from 13.8% to 15%
- The employee salary threshold – where employers pay NICs – is reducing from £9,100 to £5,000
- The Employment Allowance will increase from £5,000 to £10,500.
- The £100,000 eligibility threshold will vanish, meaning that more employers will qualify for the Employment Allowance
- The National Living Wage (NLW) (for those aged 21 and over) will increase to £12.21 per hour.
- The National Minimum Wage (NMW) (for those aged 18-20) will increase to £10 per hour.
Around 1.4 million UK businesses employ staff, most of which are micro and small businesses with up to 49 employees. Just 38,000 are medium-sized businesses (with 50-250 employees) and only 8,000 UK firms have 250 people or more. British small and medium-sized businesses employ nearly 60% of the UK workforce.
Counterbalance measures
To an extent, the National Insurance changes were counter-balanced by the increased Employment Allowance, which allows eligible businesses to reduce their liabilities. It will move from £5,000 up to £10,500 a year.
Eligible companies pay less in NI contributions on each payroll until the allowance is used up. With the removal of the £100,000 Class 1 liability limit, most employers will now be able to claim the allowance.
This move was an attempt by the Chancellor to protect small employers from increased NI contributions. She claimed that around one million employers will pay the same or less in employer NI contributions than previously.
Impact of the changes
The concern is that increasing employer NI contributions and the minimum wage could put strain on small businesses that have low profit margins or are making losses.
To cope with this new cost, businesses are considering recruitment freezes, reducing salaries or cutting future investment.
The political argument for introducing these additional costs is to boost future employment and economic conditions, by using the funds to invest in state schools, the NHS and public services.
What could it mean for you?
The best way to understand the real impact of the changes for your small business is with examples.
At the moment, an employee on the National Minimum Wage might typically work 120 hours a month at £11.44 an hour. Currently this is a monthly wage of £1,373, rising to £1,466 from April next year.
When including NI and a 3% employer pension contribution, the additional cost per employee per month is £167. Over a year it would be £2,004.
A business with 10 employees would therefore face an increase of more than £20,000 per year. If the business qualifies for the employment allowance, the total would be reduced by £5,500 per year – leaving the business still needing to find an additional c£15,000 in staffing costs.
If a business has three employees, however, the Employment Allowance would largely cancel out the additional NI and wage costs.
Plan ahead for April 2025
It’s important to apply these changes to your own business to explore the impact and understand whether you need to make changes to your strategy from April next year.
Get in touch and we can help you work through specific numbers to help you plan ahead.
As specialist small business accountants in Peterborough we’re ideally placed to support you with payroll, tax and financial efficiency. Contact us today to see how we can help on 07842507362.
