Labour delivered one of the most significant budgets ever yesterday, increasing tax and increasing spending. Below are the key takeaways for employers:
Increased National Insurance Contributions
Currently, employers pay national insurance contributions at a rate of 13.8% on a worker’s earnings above £9,100 per year, which is the equivalent of £175 per week.
The Chancellor of the Exchequer has confirmed that this rate will increase to 15%, an increase of 1.2%, and the threshold at which it gets paid will be reduced to £5,000 per year, which is the equivalent of £96.15 per week.
In order to help small businesses with the rise in national insurance contributions, employment allowance will rise from £5,000 to £10,500. Therefore, 865,000 employers will pay no National Insurance at all next year.
The Chancellor has confirmed she will not be raising income tax, employee’s national insurance contributions, and VAT.
Increased National Living Wage and Minimum Wage
The Chancellor has confirmed the National Living Wage (paid to over-21s) will increase by 6.7% in April 2025.
In addition, the National Minimum Wage will increase by 16% for 18 to 20 year olds.
The increased rates for next year are as shown in the table below:
Example
Currently From April 2025
Hours: 37.5 per week Hours: 37.5 per week
Hourly rate: £11.44 (£22,308 per year) Hourly rate: £12.21 (£23,809.50 per year)
Employer NI Contributions: £3,078.50 (13.8%) Employer NI Contributions: £3,571.43 (15%)
Pension Contributions: £669.24 (3%) Pension Contributions: £714.29 (3%)
Total costs: £26,055.75 per year (pay +16.8%) Total costs: £28,095.22 per year (pay +18%)
Business Rates
The current 75% discount to business rates will be replaced when it expires in April 2025 by a discount of 40% — up to a maximum discount of £110,000. There will be 40% relief on business rates for retail, hospitality and leisure.
Increased Costs for Private Schools
From January 2025, VAT on private school fees will be introduced and the Government will introduce legislation to remove its business rates relief from April next year.
The Plan to ‘Get Britain Working’
Ahead of the announcements made in the budget, the Government also announced their ‘Get Britain Working’ plan. This will involve spending £240 million on work, skills and health support for disabled people and long-term sick. The Get Britain Working White Paper is set to be unveiled later in the autumn and will set out the government’s plans on how they will break down barriers to work.
Therefore, the costs of employing someone are set increase in April 2025, and it is important to be prepared. If you want to discuss anything raised in this article, please email a member of the team or call 01926 853388.
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