In October 2024, Chancellor Rachel Reeves unveiled a budget introducing significant changes to National Insurance (NI) and Value Added Tax (VAT) in the United Kingdom. These reforms are likely to have significant implications for businesses across various sectors.
For many businesses, these new NI requirements represent a big increase in costs. Employers will have to pay an additional £770 in NICs for each minimum wage worker, or an extra £900 for each employee on median earnings, adding up quickly for businesses with large workforces.
Here’s what you need to know:
National Insurance Contributions (NICs) adjustments
One of the most impactful changes is the increase in employers' National Insurance contributions. Starting April 2025, the rate will rise from 13.8% to 15%, and the threshold for payments will decrease from £9,100 to £5,000. This adjustment means that businesses will incur higher costs per employee. For instance, employing a worker over 21 earning the minimum wage will cost about £24,806, up by £2,367 from the previous year.
What is the financial impact to businesses following the changes to National Insurance?
The financial impact varies by business size. While the Employment Allowance will increase from £5,000 to £10,500, exempting some smaller firms from NICs, larger businesses will face substantial additional costs. For example, retailers alone are expected to pay an extra £2.3 billion due to the NICs increase.
Strategic Considerations for Businesses
In light of these changes, it’s a great time for businesses to assess their financial strategies:
Cost management: Evaluate operational expenses to identify areas where efficiencies can be achieved to offset increased tax liabilities.
Pricing strategies: Consider the potential need for price adjustments to maintain profit margins while remaining competitive.
Financial planning: Engage with financial advisors to navigate the complexities of the new tax landscape and to explore potential tax reliefs or incentives.
Could an unsecured business loan help?
If NIC increases cause a strain, an unsecured business loan could provide short-term relief, helping to stabilise cashflow within the business.
A quick business loan can help cover payroll costs, maintain working capital, and avoid financial disruptions.
By staying informed and adapting your strategy to these changes, businesses can better position themselves to navigate the ever evolving economic environment in the UK.