Budget Sees Significant National Insurance Increase

The core tax increase within the recent budget was in relation to employers National Insurance contributions.

The new provisions will come into effect in the new tax year. 

The biggest change comes in relation to Class 1 National Insurance (employer) thresholds which will drop from £9,100 to £5,000 per annum. In a further change the main rate of secondary Class 1 National Insurance (employer) contributions will rise from 3.8% to 15%.

However, to offset some of the increase all employers will be able to claim the Employment Allowance and the amount each employer can save will rise from £5,000 to £10,500.

It is estimated that these changes could raise an additional £24 billion of tax revenue in 2025-26 and nearly £26 billion in 2029-30.

The budget also saw an increase in the Class 1 Lower Earnings Limit for 2024-25. This is the starting point at which employees begin to pay National Insurance.

Response to the changes has been mixed.

Alan Lowry, Policy Chair of the Federation of Small Businesses in Northern Ireland said:

“This budget was delivered in difficult circumstances, so we were not surprised that it set out a range of major tax increases, the vast majority of which will fall on businesses. The increase in the employer National Insurance contributions will hit many, but we were pleased that the Chancellor has taken on board the concerns that FSB has been repeatedly raising and that she simultaneously chose to increase the employment allowance for small businesses. The uplift in this allowance is very welcome, as it more than doubles from £5,000 to £10,500, which will shield the smallest employers from the jobs tax and is therefore a pro-jobs prioritisation in a tough Budget.

The Institute of Fiscal Studies said:

“It increases the costs of employment, increases the incentive on firms to use self-employed contractors rather than employees, and increases the tax on employment income relative to that on other forms of income. The way that it has been done, with at least half the revenue coming from a big cut in the threshold at which NI starts to be paid, will also weigh much more heavily on employers of the low paid. That is an odd decision, coming as it does alongside a big boost to the minimum wage.”

There has been some vocal opposition from the care and hospitality sector in particular.