In the recently announced UK Autumn Budget 2024, significant changes to National Insurance Contributions (NICs) are designed to help stabilise public finances while supporting public services. These changes include a rise in the NICs rate for employers and a reduction in the income threshold at which employers begin paying NICs.
Below, we explore these updates and their impact, alongside relevant comparisons with past rates, to offer clarity for employers.
Overview of NIC Changes
The government has opted not to increase NICs for working individuals, maintaining the basic, higher, and additional rates of income tax and employee NICs. However, to generate additional revenue, the focus is shifting to employers with the following key updates from April 6, 2025:
- The employer NICs rate will increase from 13.8% to 15%.
- The income threshold at which employers begin paying NICs for each employee—the Secondary Threshold—will be lowered from £9,100 to £5,000.
- An increase in the National Living Wage to £12.21 per hour.
The weekly rate for Class 2 NICs for self-employed individuals remains unchanged at £3.50, and the voluntary Class 3 NICs rate also stays the same at £17.75 per week.
Example: Impacts to Small Businesses because of the Hikes
Let's say a UK-based company employs staff at the national minimum wage for 30 hours a week. Below is how the cost of employing the staff will change because of the increase in wages and the NI rates.
Header | Hours | Rate | Wages | NI |
|---|---|---|---|---|
Pre-Budget | 1,060.00 | 11.44 | 12,126.40 | 417.64 |
Post-Budget | 1,060.00 | 12.21 | 12,942.60 | 1191.39 |
Added cost to the employer | 816.20 | 773.75 | ||
Therefore, the total increase in the cost to the employer is £1,589.95 per annum for each employee.
Support for Small Businesses: Increased Employment Allowance
To help small businesses adjust to these changes, the government is expanding the Employment Allowance, which offers relief by reducing NIC bills for eligible employers. This allowance will increase from £5,000 to £10,500, effective from April 2025. Additionally, the £100,000 earnings threshold for eligibility will be removed, allowing more businesses to benefit.
Discover if your business qualifies for Employment Allowance! Check eligibility to reduce your National Insurance costs today.
Previously, the Employment Allowance was only available to businesses with NIC bills below £100,000, providing a £5,000 reduction in their annual NIC liability. Under the new rules, all eligible employers will benefit from a £10,500 reduction, making a significant difference for small businesses trying to manage higher NIC rates. This change means that 865,000 employers will pay no NIC at all next year, as many will see their NIC liability fully covered by the increased allowance.
Veterans’ Employment Relief Extension
To further support employment, particularly for veterans, the government has extended NIC relief for businesses that hire qualifying veterans. Employers will continue to pay no NIC for the first year of employment for veterans, up to the Veterans Upper Secondary Threshold of £50,270.
This relief will now apply through April 5, 2026, offering a continued incentive to hire veterans and support their transition into civilian roles.
Mandatory Payroll Software Reporting of Benefits in Kind
From April 2026, the government will require employers to use payroll software to report and pay tax on benefits in kind. This phased rollout will initially apply to Class 1A NICs and income tax on these benefits, helping to streamline employers' reporting and simplify tax administration.
Summary of Key Changes and Employer Considerations
Conclusion
These NIC adjustments represent a major shift, aiming to bolster the country’s finances while carefully targeting support for smaller businesses. For employers, especially larger ones, these changes mean higher contributions, but small businesses will find some relief in the expanded Employment Allowance. By extending support for veteran employment and mandating more streamlined payroll reporting, the government is pushing toward a more sustainable approach to both finance and employment in the coming years.
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