Changes To Employer National Insurance Contributions

The big talking points of the autumn budget delivered by the new Chancellor of the Exchequer Rachel Reeves, certainly from a business point of view, were the changes to employer national insurance contributions.

Safe to say it did not go down particularly well with many businesses up and down the country. We thought we would take a closer look at the changes in this blog post, which are due to take effect in April next year.

National Insurance Is A Tax On Earnings

Here are the details of the government changes, as copied from an article on the Chartered Institute of Taxation website. The article reads:

‘National Insurance is a tax on earnings that is paid by both employees (from their wages) and by employers (on top of the wages they pay out), as well as by the self-employed (from their trading profits).

‘Technically National Insurance is a social security contribution rather than a tax, but really, it’s a compulsory payment taken from you by the Government, so, to all intents and purposes, it’s a tax.’

What The Government Are Doing

‘The government are making four changes to employer National Insurance contributions (NICs), all of which take effect at the start of the next tax year (6 April 2025).

‘Two of the changes are big tax increases – reducing the secondary Class 1 National Insurance (employer) threshold from £9,100 to £5,000 per annum, and increasing the main rate of secondary Class 1 National Insurance (employer) contributions from 13.8% to 15%. The Class 1A and Class 1B employer rates, which apply to taxable benefits-in-kind, will also increase in line with this. 

‘In partial compensation the government are increasing the generosity of the Employment Allowance in two ways. All employers will be able to claim it (rather than just employers who have incurred an employer NICs liability of less than £100,000 in the tax year prior) and the amount each employer can save will rise from £5,000 to £10,500.

‘The net revenue raised by these four changes is predicted to be just under £24 billion in 2025-26 rising to just under £26 billion in 2029-30.

‘The government will also uprate (increase) the Class 1 Lower Earnings Limit for 2024-25. This is the starting point at which employees begin to pay National Insurance.

‘This follows cuts to national insurance for employees introduced by the previous Conservative government, which reduced the main rate from 12% to 10% in January 2024 and then to 8% in April 2024.’

There is no doubt that the new Labour government need to raise revenue if they are going to fund the NHS, education and our social services and balance the books. Whether this strategy to raise revenue will prove a success time will tell, but it will be interesting to see how this all pans out.