Autumn Budget 2024 – National Insurance Contributions

In the Budget, the Chancellor reiterated she had stuck to Labour’s manifesto pledge by refusing to increase taxes on “working people” – by not increasing rates of income tax, employee National Insurance Contributions (NICs) and VAT.

However, whilst not increasing employee NICs, the Budget did increase (from 13.8% to 15%) employer NICs and also reduced the threshold annual salary (from £9,100 to £5,000) at which employers start to pay NICs for each employee.

Since an employer is only required to account to HMRC for employer NICs to the extent that they exceed the Employment Allowance, the increase in the Employment Allowance from £5,000 to £10,500 will have slightly mitigated.  However, this will only benefit the smallest of employers and many employers that did not previously pay employer NICs (because the Employment Allowance fully covered their contributions) will now have to do so.

These changes will apply from 6 April 2025, with the new threshold of £5,000 per year being in place until at least 5 April 2028.

On the face of it, the Government has kept to its pledge not to increase NICs for employees, and generally as a matter of employment law, employers cannot reduce employees’ salaries unilaterally to cover the cost of employer contributions.  Therefore, there will be no immediate effects on employees – and some employees may even marginally benefit, where their employer includes the saving in employer NICs in salary sacrifice pension arrangements.

However, the object of the changes is to raise revenue for the Treasury (almost £20bn per annum, once you allow for the cost to the public sector) and employers must fund that revenue somehow.  A likely result is that employers will focus on their overall payroll costs and that the increase in employer NICs will feed through to the next round of pay reviews.

This means that the indirect impact of increased employer NICs is likely to be felt by employees in lower salary rises than might otherwise be expected. It may also act as a deterrent to hiring new recruits.

If you would like to discuss this or any other employment or tax issues, please contact Bob Cordran or Leigh Sayliss.