How will the changes to employers' national insurance affect you?

If you are not a business owner, you may believe that the impending changes to employers' national insurance won't affect you However, experts have cautioned that these changes could restrict pay increases, lead to layoffs, and increase inflation

On Sunday, April 6, the changes announced in the Autumn Budget will take effect, requiring employers to begin paying higher National Insurance (NI) contributions.

There have been two changes. The first change is that the employer contribution rate will rise from 13.8% to 15%. Second, the annual threshold at which companies will start to pay employee salary taxes will decrease from 9,100 to £5,000.

Earlier this year, the British Retail Consortium polled 52 major retailers and found that up to two-thirds of them might consider raising prices to help defray the expenses. Approximately 50% of companies stated they would try to cut back on staffing levels or overtime.

Lush, a cosmetics company with 3,600 employees in the UK and Ireland, told the BBC this week that it would need to find an additional £2.07 million annually. The auto repair and maintenance business Kwik Fit calculated that it would require £5 million to pay for the expenses across its 5,000 workers.

Businesses will face additional pressure when the NI changes take effect, coinciding with a 67% increase in the National Living Wage. In the past, the UK retailer Next has hinted that its total wage bill may increase by 67 million.

The UK's economic growth projections for 2025 have been downgraded due to a difficult environment. Forecasts from the Office for Budget Responsibility and the Bank of England have been cut in half, from 2 percent to 1 percent and from 1 percent to 0 percent, respectively.

Capital Economics Consultancy has also taken a more pessimistic stance. "The boost from government spending has been smaller than previously thought, while the uncertainty of the global environment and higher business taxes have been a bigger drag," the consultancy said.

For what reason did the government raise employers' national insurance?

In October, when she announced the increase in national insurance, Reeves was in a difficult situation. Labour needed to raise more money to pay for public services and adhere to its fiscal rules, but it had promised not to raise taxes on working people.

It seemed more practical to tax businesses in light of this. Companies have warned that pay increases will be more restricted, layoffs will increase, and inflation will rise, according to policy critics, who contend it is naive to believe the hike won't affect working people.

Fewer businesses reported higher sales, investment, and confidence in the most recent quarterly survey from the British Chambers of Commerce (BCC), and 59 percent of respondents said that taxes were still their top concern.

"It's evident that business sentiment has declined since last year's Autumn Budget, and this new data indicates that situation hasn't improved. David Bharier, head of research at the BCC, stated, "We have seen a further worsening in some indicators."

"This is to be expected since businesses have been burdened with costs at the same time. On the home front, businesses frequently express concern about tax increases, particularly the NI increase. "A worldwide tariff war is also a significant setback for importers and exporters," he continued.

The government is expanding the employment allowance, a type of tax relief, in an effort to lessen the effect of the NI policy on small businesses. According to Reeves, "this means that over a million employers will pay the same or less than they did previously, and 865,000 employers won't pay any National Insurance at all next year."

Who is responsible for paying for National Insurance?

The government's second-largest revenue source, after income tax, is national insurance. According to the most recent data available, NI contributions generated over 179 billion dollars in the 2022 - 2023 tax year, or 22% of total tax revenues.

The majority of NI's costs are borne by employers. They covered 61% of the total in 2022 - 2023, while employees covered 35%.

Depending on their level of profit, some independent contractors must also pay NI contributions. Voluntary contributions can be made by those under the threshold and those not employed at the moment to prevent gaps in their NI record. Benefits like the state pension are calculated using your NI record.

How much do employers and employees pay each other?

Various National Insurance classes exist based on your employment status. You will pay Class 1 if you have a job. Both primary and secondary contributions are made by the employer and the employee, respectively.

Contributions from employees to NI.

The amount of money you make determines your National Insurance rate. According to the table below, an employee making £1,000 per week would contribute £586.66 in national insurance.

Employer-sponsored insurance contributions.

Current regulations state that once an employee's weekly salary reaches £175, or £9,100 annually, employers must begin making NI contributions on their behalf. Starting on April 6, 2025, the weekly threshold will be reduced to 96, or 5,000 annually.

Contributions are currently paid out at a rate of 13.8 percent, but this will rise to 15 percent as well.

Assuming the employee makes 1,000 per week, this means that once the regulations change, employers will pay 135.60 in national insurance instead of 113.85. That is more than 1,100 more per year, or about 22 more per week.

Which tax benefits are available to employers?

The employment allowance is a tax relief measure that enables certain employers to lower their total annual National Insurance liability by up to £5,000.

As of right now, you are only eligible for this allowance if your annual net worth was less than £100,000 during the prior tax year. Stated differently, the allowance is only available to small businesses.

However, Reeves declared that this allowance would be raised to 10,500 annually in order to lessen the impact of the Autumn Budget. Additionally, most businesses or charities will be able to apply since the £100,000 threshold will no longer exist.