Employers take NI hit in the 2024 budget
Posted on 12th November 2024
Chancellor of the Exchequer Rachel Reeves set out the first Labour budget for some 14 years. Whilst it is fair to say that employees didn't come off too badly but the same cannot be said for employers. In particular small company's who are sole-director owned and operated and who adopt[t a small salary with dividend payments have certainly taken a hit.
As from April 2025 most if not all such small SME's will need to review such a strategy. In this article we cover some relevant points relating to the NI changes announced.
Change to National Insurance (April 2025)
The Government have reduced the secondary threshold when contributions are due from £9,100 to £5,000.
What this means is the £758 per month wage you currently pay yourself that does not attract any NI charges will need to reduce to £416 per month.
How can we get around this? Well in short, we can’t.
The biggest hurdle to overcome is for those clients who rely on their £758 per month wages (£9,096 per year) as an expense in order to reduce Corporation Tax profits
Its not all bad news though as remember the £4,100 reduction you can now use to pay yourself £4,100 more in dividends tax free (assuming your tax allowance is £12,570)
Employer National Insurance increase (April 2025)
Employers’ national insurance contributions will increase by 1.2 percentage points to 15%.
What this means is that whilst employees have not taken a hit in the budget employers have but please read next point.
See current and proposed NI rates here https://www.gov.uk/national-insurance-rates-letters
Employment Allowance (April 2025)
To offset the aforementioned employer National Insurance increase, it was announced that in order to support small businesses with these changes, the government is increasing the Employment Allowance from £5,000 to £10,500 and removing the £100,000 threshold, expanding this to all eligible employers.
Where an employer does not use all of the £10,500 then there will be no additional NI costs to the employer.
Please remember for those Sole Director owned company’s without a qualifying employee then the Employment Allowance remains unclaimable (but please see next point)
Opportunities a foot?
Given the announced lowering of secondary threshold to £5,000 what it does mean is that for those sole Director owned company’s where they currently pay themselves £758 per month if they can find an Employee that can go on the books with a monthly salary of £416 then they can qualify for the Employment Allowance which would give them scope to then increase the Directors wage. This is not straightforward to explain in this type of communication and we suggest a chat if you feel this is of interest.
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