Businesses are being warned that National Insurance rates will rise from April 1 as part of policies outlined in Chancellor Rachel Reeves's Autumn Budget last year.
Reeves has came under fire from the private sector over her tax raid with analysis suggesting that 17,000 high street shops could close for good due to the extra burden.
The Chancellor has defended her changes to National Insurance and committed to bolstering the UK economy's gross domestic product (GDP) growth.
However, businesses have cited the latest projections from the Office for Budget Responsibility (OBR) which estimate GDP has been halved from two per cent to one per cent for 2025. Reeves's tax policies have been blamed by some for this development.
National Insurance will change next month - how will you be impacted?
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Here is a full list of the changes to National Insurance being implemented in April 2025 that businesses need to be aware of:
- Increase in the rate paid in National Insurance contributions made by employers
- Reduction in the secondary threshold for class 1 National Insurance contributions
- A hike in Employment Allowance made available to businesses.
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Rachel Reeves confirmed National Insurance hanges in the Autumn Statement last October
PANational Insurance rate increase
Rachel Reeves's "tax on jobs" will see the National Insurance contribution rate for employers rise to 15 per cent, a jump from 13.8 per cent.
Analysts have warned that, while not directly impacted by this change, employees could be inadvertently impacted by this looming rate increase.
Nerdwallet stated: "Employers’ costs will increase because of the hike in National Insurance and minimum wages. This could lead them to hire fewer people or offer lower pay increases."
This National Insurance rate rise comes into effect from April 6, 2025.
Business owners are expected to pay more tax thanks to the Chancellor's polices
GETTYChanges to National Insurance threshold
In less than two weeks' time, businesses will begin paying National Insurance on more of an employee’s earnings due to an alteration of the tax allowance.
As part of her last official Budget, Rachel Reeves confirmed that the threshold for businesses paying the levy will be slashed from £9,100 to £5,000.
This change in allowances mirrors the decision to freeze income tax thresholds, which has resulted in Britons paying more due to fiscal drag.
Interactive investor's analysis found that those earning £20,000 will pay £81 more tax in 2024-25, even with a £149 saving following the cut to eight per cent, because income tax thresholds have not gone up with inflation.
Employment Allowance
Despite the perceived raid on businesses, the Chancellor has revealed that the employment allowance will go up from £5,000 to £10,500 next month.
Thanks to the policy change, smaller firms in the private sector will be able to claim back National Insurance up to the allowance limit.
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Kevin Mountford, the co-founder and personal finance expert at Raisin UK, noted that the Chancellor offered very little relief to those impacted by the tax hike.
He explained: "While some remained hopeful that relief measures to combat the impact of increases in Employers' National Insurance Contributions would be announced today, it is not a surprise that the government has not made a U-turn.
"It will play a key role in combating the £22billion deficit in the budget, but the consequences to individuals and businesses will be hefty.
"Businesses will face higher operating costs and these expenses may pass to employees and consumers, resulting in hindered wage growth and job creation at a time when the economy’s growth has been stilted."
