It feels as though an age has passed since the UK’s first female Chancellor, Rachel Reeves delivered her inaugural budget back in October and the effects of these have seeped somewhere into the back of our collective subconscious. But thus far many of the changes announced have yet to take full effect, with most of the changes coming into force in time for the new tax year in April 2025.
The most far-reaching announcement made related to the hike in Employers National Insurance from 13.8% to 15%. In real terms this will increase most businesses National Insurance payments by 8.7%. Further exacerbating the National Insurance hike for business is the reduction in the threshold from £9,100 to £5,000, costing employers an extra £615 per employee on this alone. Your business will have to plan accordingly for these rises and there is certainly the risk that employers may be dissuaded from hiring in favour of other options such as sub-contracting or outsourcing where this may be suitable.
Of some small redemption is the increase in the annual Employers National Insurance allowance which will rise from £5,000 per annum to £10,500. This means that some smaller employers should actually benefit from the changes when all said and done providing that their total Employer NI bill sits below the £10,500 threshold.
Of course with all of the above changes the caveat remains that with any increase in business costs there will be a reduction in taxable profits. With most companies now paying 25% Corporation Tax this will dampen down a proportion of the overall effect.
Certain sectors will likely be affected more than others with these changes. Labour intensive businesses relates to services and hospitality businesses look set to be some of the worst affected – particularly when we take into account the increase in the National Minimum Wage thresholds.
How employers will react to this from April remains to be seen but there is bound to be a general reduction in appetite for hiring new staff given these announcements.
Will we see a reduction in employment rates? Will the outsourcing sector continue to gather pace, particularly where services are available offshore? How will the increase costs affect inflation? Will companies think twice before offering pay rises? Will this lead to an increase in Salary Sacrifice scheme?
There are many questions raised by this increase that will affect business and the economy as a whole, and the overall affect may take some time to be seen but it is important to consider how this will affect your business and budget for the changes accordingly.
Contact our Team
If you are an Employer with questions about National Insurance and the upcoming changes, please do not hesitate to get in touch.
Robin Maxwell
Robin Maxwell is a partner of Rogers Spencer and has been working with us since 2003. Robin specialises in Accountancy Solutions, Audits and Tax and VAT. Find out more about Robin here.