What are the key changes to National Insurance?
The UK government has announced significant changes to employer National Insurance contributions that will take effect from 6th April 2025. These changes were announced in the Autumn Budget 2024 and will impact all businesses with employees. The key changes include:
- An increase in the secondary Class 1 National Insurance contributions rate from 13.8% to 15%
- A reduction in the Secondary Threshold from £9,100 to £5,000 per year
- An increase in the Employment Allowance from £5,000 to £10,500
- Removal of the £100,000 eligibility cap for the Employment Allowance
These changes are expected to raise approximately £25 billion per year for the Treasury, which will be used to support NHS funding and public services.
How will this affect employers?
The changes will have varying impacts on different businesses:
Small businesses
Many small businesses will benefit from the increased Employment Allowance, which will now provide relief of up to £10,500 on employer NI contributions. Additionally, the removal of the £100,000 eligibility cap means that all qualifying businesses can now claim the allowance, regardless of their previous year’s NI liability.
Medium and large businesses
Larger employers will generally face increased costs due to:
- The higher secondary Class 1 NI rate (15% instead of 13.8%)
- The lower Secondary Threshold (£5,000 instead of £9,100), meaning NI will be payable on a greater portion of employees’ earnings
What about employee National Insurance rates?
The changes announced in the Budget do not affect the rates paid by employees. Earlier in 2024, employee National Insurance rates were reduced:
- The main NI rate for employees decreased from 12% to 8%
- For self-employed individuals, Class 4 NI contributions fell from 9% to 6%
- Self-employed workers no longer have to pay Class 2 contributions
The government has confirmed that these reduced rates will remain in place.
What are the timelines for implementation?
These changes will take effect from 6th April 2025, the start of the new tax year. The Secondary Threshold of £5,000 will remain in place until 5th April 2028, after which it will increase in line with the Consumer Price Index (CPI).
What should employers do to prepare?
As an employer, you should:
- Review your payroll systems to ensure they will be updated for the new rates and thresholds
- Budget for the expected increase in employer NI contributions
- Check your eligibility for the Employment Allowance if you haven’t previously been able to claim it
- Consider the timing of any planned pay reviews or bonuses that may be affected by the changes
What happens if I’m not compliant?
HMRC can impose penalties on employers who do not correctly implement the NI changes. It’s essential that your payroll systems are updated in time for the new tax year to avoid any issues.
How can Payroll Hub help?
We provide the best payroll solution for you and your business. Our fully managed payroll service ensures you remain compliant with all legislative changes, including these upcoming National Insurance modifications.
As your outsourced payroll provider, we:
- Stay up-to-date with all legislative changes
- Ensure your payroll systems are updated on time
- Calculate the correct NI contributions for your business
- Help you maximise available reliefs such as the Employment Allowance
- Provide clear reporting on your NI liabilities
Allow us to take care of your National Insurance responsibilities and alleviate the potential headache that comes with legislative changes. You can be totally confident that all your obligations are met while you focus on running your business.
If you have any questions about the National Insurance changes or how they will affect your business, please email us at enquiries@payrollhub.co.uk, and we will be happy to answer them.