Recent Budget Announcement: Increase in cost of employment? What can the business owners do?
Here it is the summary of changes from 6th April 2025:
The rate of employers’ NI will increase from 13.8% to 15%. This rate applies to Class 1A NI, payable on benefits in kind, and Class 1B NI on PAYE settlement agreements.
The employers’ NI current threshold of £175 per week (£9,100 p.a.) will decrease to just £96 per week (£5,000 p.a.). For an employee, on a £175 weekly wage, the change generates an additional charge on the employer of £615. On an average full-time salary of £35,000, the extra burden is £926 p.a.
The Employment Allowance (EA) increases to £10,500 p.a. Crucially, from the same date the EA is also made available to all eligible employers (irrespective of size) as the qualifying condition requiring an NI liability below £100,000 is removed. While the EA is a drop in the ocean for larger employers, it will at least offer much needed solace for smaller businesses and charities. There are many exclusions from the EA.
Even though employers’ NI is a tax-deductible cost it will hit business profits. Coupled with the statutory rise in the national minimum wage rates, this is a double whammy for smaller employers. While some may pass the costs to customers via increased prices, this won’t be possible for all employers.
What can the business owners do?
Here some of my recommendations that you may find useful to consider:
1. Prepare payroll budget and position: Establish “real” financial and cash flow impact to your business.
2. Re-assess business value chain and identify inefficient/non value adding processes: Business understanding is specific to the company however it should be clear how each business area eg sales, marketing, operation, finance etc work to create value for your business. Remember, business model describes range of activities need to create products & services and follow through value chain. If there are non-value adding or inefficient processes or non-contributing activities in the business, then this will impact on your business financials. Its time to start brainstorming and questioning!
3. If you are recruiting, then re-assess for outsourcing or consider for job sharing and deployment instead of increasing number of employees.
4. Salary sacrifice (optional remuneration arrangements) will save employers’ NI as the employee receives an alternative, such as pension contributions or free childcare, in lieu of a reduced salary
5. You could consider paying any bonuses before April 2025 if finances allow.
6. For single director shareholder companies, extracting profit via dividends rather than salary will save employers’ NI. (Depending on individuals’ circumstances)
7. Going forward, future workforce budgets will need to incorporate the increased NI burden which may result in more modest pay rises.
8. To assist cash flow, the smallest employers, whose average monthly PAYE is below £1,500, can arrange to pay their PAYE/NI quarterly by phoning the Employer’s Helpline on 0300 200 3401.
Please get in touch if you would like to discuss further.
Skynet Accounting is providing powerful business financial management services and bringing skills and expertise to your business in cost effective way.
#Manufacturing#productioncosts#efficiencies#costeffective#productcost#budget#skynetaccounting#inventory#production#payroll#financialmanagement#PAYE#valuechain#contribution#outsourcing#