Chancellor Rachel Reeves has announced she will increase the rate of National Insurance paid by employers by 1.2 percentage points to 15% from April next year.
During her Autumn Budget speech today (30 October), Reeves kept Labour’s promise that it would not increase National Insurance, VAT or income tax for ‘working people’.
“Working people will not see higher taxes in their payslips as a result of the choices that I am making today,” she said. “That is a promise made and a promise fulfilled.”
However, she insisted that “any responsible chancellor would need to make difficult decisions today to raise the revenues required to fund our public services and to restore economic stability”.
“In today’s Budget, I am announcing an increase in employers’ National Insurance contributions,” she added.
She also said the Treasury would reduce the secondary threshold, the level at which employers start paying national insurance on each employee’s salary, from £9,100 a year to £5,000.
“This will raise £25bn per year by the end of the forecast period,” she said. “I know that this is a difficult choice. I do not take this decision lightly.”
In the document published after the speech the Treasury said that, to support small businesses with the changes, the government is increasing the employment allowance from £5,000 to £10,500.
It is also removing the £100,000 threshold, expanding this to all eligible employers. This means that 865,000 employers will pay no NICs next year.
Evelyn Partners partner Alexander Simpson said: “The impact of a 1.2 [percentage point] increase in the employer NIC rate will be significant for many businesses.
“An employer with an annual wage bill of £5m across 100 employees would currently have an employer NIC liability of approximately £564,000.
“From April 2025, employer NIC costs in this example will rise to approximately £664,500.”
She said class 1 employer NIC is a “significant source” of revenue for the government.
“The government estimates that the changes to employer NIC will generate an additional £23.7bn in 2025/26.
“However, smaller businesses will welcome the increase of the Employment Allowance from £5,000 to £10,500 to reduce increased NIC bills.
“Following this announcement businesses should plan for pay rises for employees for 2025 and beyond.
“Employers should also review their benefit offering to ensure that they are getting value-for-money in light of this increase to the overall cost of the provision of benefits.
“The structure of benefits should also be reviewed to ensure that exemptions that are available, from both income tax and NIC, are being captured.
“Notably, an opportunity may arise for employers to offset some of this cost through the use of a salary sacrifice pension scheme including bonus sacrifice where not already in place.”
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