Chancellor Rachel Reeves’ 2024 Autumn Budget has significant consequences for UK businesses and employers; not entirely surprising, given that Labour were keen to avoid any direct increases to income tax, Employees National Insurance or VAT.
Over £40 billion of tax increases were announced, as the Government attempts to fill a £22 billion gap in public finances, with the headline measure being a rise in employer National Insurance Contributions (NICs) from 13.8 per cent (where applicable), to 15 per cent.
In addition, the threshold at which employers are required to begin paying NICs has been reduced from £9,100 to £5,000 per year, meaning employers will now be making contributions on behalf of many more low-earning members of staff. Both changes will apply from 6 April 2025.
An increase in Employment Allowance to £10,500, and the removal of the £100,000 threshold, does offer some breathing space to around 865,000 of the smallest businesses – but other employers may still be facing a perfect storm of rising costs.
The cost of employment – NICs and National Living Wage (NLW)
Alongside the rise in NICs for employers, the Chancellor announced a rise in the National Living Wage (NLW) to £12.21, a 6.7 per cent increase from the current rate of £11.44. This rate must be paid to workers aged 21 and over from April 2025.
The increase, recommended by the Low Pay Commission, equates to an additional £1,400 per year for a full-time worker who is over the age of 21.
Labour’s objective is to work towards a single adult wage rate, as opposed to the current NMW/NLW bands, with the first step being an increase in the rate paid to 18-20 year olds from £8.60, to £10 from April 2025.
What do the changes mean for employers?
The impact of the changes on your business will depend upon a number of different things, including:
- The number of employees you have on your payroll, and how many of these are paid at or above the current NLW/NMW rates
- If you have only one employee who is also a director (this will mean you are unable to claim the Employment Allowance)
- Number of employees paid above the secondary NIC threshold
Coupled with the cost of increased NICs, businesses will experience significantly higher employment costs in the next financial year and subsequent years.
Sectors with a large proportion of casual and flexible workers, such as hospitality, retail and leisure, are likely to be disproportionately affected by these measures.
As a result of the latest changes, employers are going to be feeling added pressure when it comes to recruitment and retention of existing workforces.
Taking stock of your costs as they stand currently, and running the numbers to account for the changes will give you an idea of what you can expect going forward, and a chance to consider whether the difference is something you can afford.
For advice on managing your business costs, accommodating changes to payroll legislation, and planning around Budget measures, please contact our team.
