Preparing For April NIC Increases

Do you have a plan to deal with the April National Insurance Contribution (NIC) increases?

Since Rachel Reeve’s first Budget last October, businesses that employ staff have been worrying over what they should do about the NIC increases being introduced WEF 6 April 2025:

• Employer’s NIC rate increasing from 13.8% to 15%.
• The secondary threshold, above which employer’s NIC are due, reducing from £9,100 to £5,000.
• Partly offsetting these increases, there will be a reduction in NIC, through the Employment Allowance increasing from £5,000 to £10,500.

How much this change will add to your business’ wages cost will clearly depend upon how much you pay your staff and how many staff you employ. But a quick calculation on a typical business suggests that this equates to approximately +3%.Preview Changes (opens in a new tab)

Also changing in April is the National Living Wage; increasing from £11.44 to £12.21 – equivalent to approximately +7%. So any of your staff aged 21 and over, currently paid on an annual salary of less than approximately £23,800, will be entitled to an automatic uplift. The effect of this upon you will also depend on your pay rate profile.

As April is quite a common month for annual pay reviews, business owners will also be keeping an eye on earnings inflation, which is probably currently somewhere around +5%.

So how should business owners react to this potential double digit % cost increase in a few weeks time?

• 1. Do nothing

Absorbing this extra cost out of your profits or business owner remuneration. Probably fairly unpalatable and possibly enough to make your business loss-making. Stagnation within the UK economy generally will hamper the ability to just trade through this change without consequence.

• 2. Reduce headcount

Through redundancies or natural wastage.

• Reduce other upward pressures on your wages bill:
  • 3. Perhaps by not giving inflationary rises or encouraging staff onto more NIC efficient salary sacrifice remuneration elements (eg salary sacrifice and employer pension contributions). This will probably be more problematic in practice than it sounds in theory.
  • 4. Reduce your headcount and introduce new work practices (E.g. digitisation or pay based upon output/performance rather than time) – to enable your staff to be more productive. A good option, if possible.
  • 5. Offshoring – to a lower wage jurisdiction. This used to be the preserve of large businesses only, but the new WFH culture has proven this should also work for smaller businesses.
  • 6. Off payroll working – moving people engagement from PAYE to self employed.  Often tricky to do this and to feel safe from a potential future HMRC disguised employment challenge.
  • 7. Outsourcing – purchasing non core people services (eg reception) from another business. Making sure you balance cost, quality & control.
  • 8. Job Sharing. Splitting full time roles between more than one employee, to maximise the number of nil rate NIC secondary thresholds within your payroll.

• 9. Reduce other business costs, to compensate

Most businesses will have already paired back other costs as far as they can go – but worth considering again. Could the new culture of widespread use of WFH practises now allow you to reduce the amount of space you rent? Or are there discretionary spends that could now be cut back?

• 10. Scale-up or scale-down

If your business profitability no longer supports your admin wages costs, would the maths work better if the business was larger or smaller, resulting in higher gross margin being covered per employee (eg by merging sites)?

• 11. Pass on wages cost increase to customers – via a price rise

This seems the natural way to manage this, if the market will take another re-pricing. For businesses that employ a lot of staff at around the National Living Wage, however, such a (>10%?) price rise could be the straw that finally breaks the camel’s back.

• 12. Or, maybe it’s time to call it a day, and exit your business.

For some businesses, a combination of more than one of the above might be best advice. But not an easy decision – so a good old fashioned political U-turn would be very welcome ASAP, please.

Get In Touch

For more information or advice regarding preparations for the April National Insurance Contribution increases, contact your local Whitings LLP office today.

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