Nic for employers to rise

From April 2024, employers across the UK will face a significant rise in National Insurance contributions (NICs), marking one of the most substantial changes to employment taxes in recent years. If you haven’t already factored this into your business planning, now is the time to act. This change will directly impact your payroll costs, cash flow forecasting, and potentially your ability to offer competitive wages or invest in growth. Let’s break down what’s happening, who’s affected, and what you can do about it.

What’s changing and why?

The government has confirmed that the secondary threshold for employer NICs will fall from £9,100 to £5,000 for the 2024/25 tax year. Put simply, this means you’ll start paying National Insurance contributions on employee earnings at a much lower level than before. The rate remains at 15%, but the fact that it applies to a larger proportion of your wage bill makes a material difference to your outgoings.

This change is part of the government’s broader fiscal strategy and comes despite earlier commitments to keep employer NI burden low. The reasoning is that the tax base needs to broaden to support public finances, but that won’t make it any easier for your business to absorb the extra cost.

Which businesses are affected?

In theory, every employer pays secondary NICs on their employee payroll—there’s no size exemption. However, the impact varies significantly depending on your circumstances.

Small businesses with just a handful of employees will feel this acutely, as there’s no allowance or relief built in. If you employ three people earning £25,000 each, you’re suddenly liable for NI on substantially more of their earnings than you were previously.

Growth-stage companies that are planning to hire may need to reassess recruitment budgets. An additional £2,000–£3,000 per employee annually isn’t negligible when you’re scaling.

Large employers have more capacity to absorb the cost, but it still affects your bottom line and profitability forecasts.

The only businesses with some breathing room are those who can claim employment allowance (provided they’re eligible), which currently stands at up to £5,000 per year. This directly offsets your NIC liability, meaning some employers won’t be worse off. However, eligibility rules are strict—you generally can’t claim if you’re a sole trader, a partnership, or if your sole director is the only employee.

Planning ahead: what you can do now

Review your payroll forecasts. If you haven’t already updated your 2024/25 projections, do it immediately. Calculate the additional NIC burden on your current headcount. For many businesses, it will represent a 1–3% increase in overall employment costs.

Check your eligibility for employment allowance. If you’re not currently claiming and you’re an eligible organisation (limited company, LLP, charity, or public body), applying is straightforward and can offset the entire rise for smaller employers.

Consider your fee structure or pricing. Some service-based businesses will need to review their rates to maintain margins. This isn’t about passing all costs to clients—it’s about recognising that your operating costs have gone up and adjusting accordingly.

Evaluate your salary strategy. Some employers have asked whether they should increase salaries in advance of April 2024 to lock in lower NI contributions. Technically, you could do this, but it’s worth discussing with your accountant as there may be other tax implications (pension contributions, business rate calculations, and so on).

Plan your cashflow carefully. NIC is paid through PAYE alongside income tax and employee contributions, so the extra cost hits your bank account every month. Make sure your working capital arrangements account for this.

Looking ahead

This change is permanent. Unlike some tax measures that sunset after a year or two, the lower secondary threshold is here to stay. When you’re forecasting beyond 2024/25, factor this in as a baseline operating cost, not a one-off adjustment.

It’s also worth staying alert to further developments. While the government hasn’t signalled further immediate rises, employment taxes remain a potential revenue-raising tool during spending reviews.

Get support now

Changes to employment tax can be complex, especially when you’re running a business. The difference between a well-planned response and a reactive scramble in March 2024 could be worth hundreds—or thousands—of pounds to your bottom line.

For tailored advice, contact Severn Accounting — we’re here to help.