February 17, 2025
Article
Who pays it?
Employees pay NI between the ages of 16 and the State Pension Age (currently 66 years old). Employers pay NI on salary over the secondary threshold, which at the time of writing this is £9,100.
What are the changes?
The rate of Employers' NI contributions will increase by 1.2 percentage points to 15% from April 2025.
The threshold at which employers pay Secondary Class 1 NICs will be reduced from £9,100 to £5,000.
The Employment Allowance will be increasing from £5,000 to £10,500 in April 2025, and the Employment Allowance Cap will be removed.
Under a scenario where a company has 30 employees each paid on average £30k a year, we would expect the extra cost per employee to be roughly £512 a year. For a business with 80 employees with an average salary of £30k per year, the additional cost per employee is roughly £598 a year. This calculation considers the NIC changes and the additional tax savings that will come with higher costs. In conclusion, the higher your payroll expense, the more impact the changes will have on your overall cost per employee.
What can you do to mitigate the rising costs?
Rising costs are inevitable in business but there are several factors which have made recent times more challenging than others. Not only was COVID-19 a difficult period, but the Ukrainian War hiked up energy prices, and now we are seeing austerity measures which will increase the cost of hiring employees.
So, here are a few things you might want to think about to help mitigate the rising costs.
- Rise prices: This is often a last resort for business owners as they feel that customers will look elsewhere. However, when was the last time you tried? The Bank of England forecast that inflation will be 3.7% by the third quarter of 2025 so customers are expecting higher prices, and therefore you might be surprised at how small the effect of increased prices can be. Consider rising prices for small groups at a time or certain products and services and monitor the impact before rolling it out entirely.
- Review your profit and loss account for any non-essential expenditure: Often, costs add up over time and are left unchecked. Just like that subscription that you have forgotten to cancel. Consider checking all your expenses and cutting those non-essential costs. You can always bring a cost back in if you feel you need it.
- Re-assess your staffing needs: With the economy experiencing only modest growth, perhaps this is the time to consider whether your staff are fully productive or whether they can carry out multiple roles. It could also be a good time to investigate what technology you can utilise to automate tasks, freeing up time for staff to do other things.
- Forecasting: Prepare a cash flow forecast that takes increased costs into consideration. This will give you peace of mind that there is enough cash in the business. If there isn’t, knowing this early will give you time to source additional financing.
How can we help?
Changes in costs and tax rates are nothing new. Therefore, business owners are used to these challenges. However, changes can cause additional stress if there is uncertainty about whether there will be enough cash in the business to pay for them.
We work closely with businesses to navigate changes and will be happy to help you understand what the impact is and offer advice to ensure you succeed. Whether it’s producing forecasts, help raising funding or more general commercial and financial strategic advice, please contact us.