Employer Allowances and NI, and the Effect of the NMW Rise

Employer Allowances

The employer allowance is feted to rise to £10,500 in the new tax year. In addition to this, the cut-off point for eligibility (£100,000 previously) of the allowance is being scrapped. This means that all companies who are not classed as a public sector business, or are part of a group of companies, can now claim the allowance, no matter how much NI their payroll generates. However, as everyone is now aware, big increases in employer NI contributions kick in from the start of the 2025-26 tax year.

Increases in Employer NI

The secondary threshold (where employers start to pay NI) drops from £9,100 to £5,000 per month. At the same time the rate at which NI is charged increases from 13.8% to 15%. So, for an employee earning £2000.00 per month, the NI liability will increase from £171.40 to £237.45 per month. However, that isn’t the only sting, as (depending on how many hours your employees work) minimum wage increases could see your employee earning £2,000 receive a pay increase as well.

Knock-On Effect of NMW Rise

The minimum wage is rising to £12.21 per hour, meaning the cost of employing a worker on minimum wage, on a 40-hour week basis, will rise from £1,982.93 to £2,116.40. Add on an extra £85.87 per month in employer NI and the increase in cost comes out at £219.34 per month per employee. If you then have to factor in maintaining pay differentials, the next two years (before further NI changes kick in) could prove very expensive indeed.

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Disclaimer - All information in this post was correct at time of writing.