In her inaugural Budget, Chancellor Rachel Reeves set out a number of changes affecting employers contributions and outgoing.
These were:
- Employer National Insurance to rise from 13.8% to 15%
- Threshold at which employers pay National Insurance to drop from £9,100 to £5,000
- Minimum wage increases to £12.21 an hour – a 6.7% rise
- Employment Allowance increased from £5,000 to £10,5000, saving many businesses on their National Insurance bill
- Income tax threshold freeze not to go beyond 2028
Commenting on the changes, Laura Suter, director of personal finance at AJ Bell, said: “It’s a Budget to batter businesses, with big hikes to payroll costs coming from National Insurance increases and a higher minimum wage. Put together it means that it will cost a business almost £2,400 more to employ someone on the minimum wage working 35 hours per week* from April next year.
“The increase to employer National Insurance from 13.8% to 15% will add dramatically to employer’s staffing bills. But the Chancellor’s plans to slash the starting threshold where employers pay National Insurance will add on far more on top. It means that once an employee earns just £5,000 an employer will have to pay NI on that money, at a rate of 15%. For an employee earning £30,000 that will add an extra £865 onto employer bills a year.
“The smallest businesses will be protected from some of these cost increases, as the Employment Allowance will more than double from £5,000 a year – meaning they can claim back up to £10,500 a year on their National Insurance bill. This will also be extended to all businesses, providing some respite for employers. But regardless of this tax break, the move will raise huge sums for the Government – netting them £26bn by the 2029/30 tax year. However, £5bn of that will come from the public sector wage bill, offsetting some of the impact.
“While these measures are a cost increase for many businesses, it will inevitably hit the British public in their pockets as companies pass on those costs. Whether that’s lower pay rises for staff, cuts to future hiring or businesses passing on cost increases to customers.”
Damon Hopkins, Head of DC Workplace Savings at independent financial services consultancy Broadstone, said the increase in the rate of employer National Insurance and lowering the threshold for when businesses start paying the tax “will add to the financial pressures that businesses are already experiencing. With the exception of very small businesses, this revenue raising measure is likely to have immediate knock-on consequences whether that is pausing hiring, scaling back or scrapping pay increases and/or reviewing existing employee benefit arrangements.
“It is positive that the Government looks to have resisted the temptation to introduce National Insurance on employers’ pension contributions which may have had the impact of reducing contributions at a time when we need to be doing all we can to help workers save more into their pension pots.
“In light of these changes, it is crucial for employers to strike a balance between managing the direct impact on their business.”
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