As part of the Autumn Budget 2024, the government have confirmed that employment costs on employers are increasing from 6th April 2025 with:
- The introduction of a lowered Secondary Threshold reduced from the current £175 per week to around £96 Per week.
- An increase in the employers National Insurance contribution rate from the current 13.8% to a new higher rate of 15%
- The employment allowance which can be offset against employers NIC liabilities for those who qualify increases from the current £5,000 per annum to a new higher £10,500 per annum taking swathes of smaller business out of paying secondary NICs.
No immediate or mid tax year change is being proposed, these new changes will apply from the new tax year 6th April 2025.
There are minor challenges as the secondary threshold is now lower than the Lower Earnings Limit which applies to employees National Insurance.
The new thresholds
The secondary thresholds are anticipated to be confirmed soon, using the £5,000 with general rounding principles these are show for the periods in italics:
Contribution rates
The following standard rates:
And for mariner NICs:
Benefits, terminations, PSAs
The employer rates for Class 1A and Class 1B:
Employment Allowance
And for those that qualify for the employment allowance:
Payroll software impacts
As these changes apply to the new tax year, then there is a more restricted impact on payroll change and the alignment is with the standard annual up-rate point.
This may impact reporting requirement for the 2025/2026 tax year due to the earnings attracting contributions potentially below the LEL value which would normally be reported as zero.
What else should be considered?
For benefits which are exempt from the Optional Remuneration Arrangements (OpRA) rules and utilised for Salary Sacrifice arrangements, the employer NI savings increase.
So the range of earnings that the salary sacrifice savings expands and with the increased percentage, the amount of employer savings also increases.
With confirmation that employers NI will not apply to employer pension contributions, the popularity at least for the short term increases.
Some employers share their NIC savings with their employees such as increased pension contributions. These arrangements will need to be reviewed as to whether to stick as is or increase the share to reflect the change.
For the Class 1A liability on benefits in kind, the rate equally rises to 15%.
Umbrella employments and directors payments
For some employment types, the engager is not the employer and may pay a fixed work or task rate without any liability for employer NICs, App Levy, or other employment rights obligations such as sickness, maternity or holiday pay etc.
Equally single director PAYE schemes do not qualify for the £10,500 employment allowance to offset against increase liabilities.
Some directors organise their payments to the levels of the secondary NIC levels to reduce their liabilities as much as possible to both tax and NICs.
From this change, a review of payments in light of the new reduced Secondary Threshold and also the increase in the employer rate will need to be considered.
For those employed via an umbrella where the employer costs are reduced from the engager fee paid, the net payments are likely to be reduced causing pay impact on a group that like to consider themselves as self employed where in reality they are employed by their umbrella or private services company.
The implications of this new change needs to be analysed and acting upon first the 6th April 2025.
PAYadvice.UK 30/10/2024 updated 31/10/2024