The unknown opportunities to save Employer’s NICs
The 30 October Budget, presented by Rachel Reeves, outlined substantial changes to employer’s National Insurance Contributions (NICs) set to take effect from 6 April 2025.
These changes bring not only an increase in the employer’s NIC rate but also a drastic reduction in the salary threshold for when contributions begin to be payable.
The implications are significant and demand careful consideration by all employers.
But what needs to be equally taken into account, are the categories of employees where reliefs or exceptions apply to minimise the impact of these changes. Recent commentary by business owners relating to apprentices or teenagers suggests that these rules are not commonly known.
17th January 2025
-
Stephen Martin See profile
_
1. Rate increase. The current employer’s NIC rate of 13.8% will rise to 15%.
2. Threshold reduction. The secondary threshold – the annual salary above which employer’s NIC begins to be payable – will drop sharply from £9,100 to £5,000.
3. Employment Allowance changes. This allowance, which can be offset against the total employer’s NIC liability, will be increased from £5,000 to £10,500 per year. In addition, this allowance will be claimable by all employers, rather than just employers with an employer NIC liability of £100,000 or less.
To put this into perspective, an employee earning £9,100 today incurs no employer NIC liability whereas under the new rules, the employer will face a £615 annual NIC liability for the same salary (ignoring any claim to the Employment Allowance).
This represents a substantial NIC burden. For many businesses, this is a direct hit to profitability, making it a potential disincentive for hiring.
Whilst these rules are wide-sweeping and will impact very many employers, there are several key exceptions and reliefs to these rules, which many employers may be overlooking:
Employees under 21
A 0% rate of employer’s NIC applies for employees under 21, up to an annual salary of £50,270.
Apprentices under 25
Similarly, the 0% rate applies for employees under 25 on a formal apprenticeship, again on salaries up to £50,270.
Veterans
Employers hiring veterans can also benefit from the same 0% rate of employer’s NIC, if the veteran is within their first 12 months of a civilian role after leaving the armed services.
In all three cases, the normal rate of employer’s NIC will be due on the portion of any annual salary paid above £50,270.
Another relief which is not widely known relates to employees in Freeports or Investment Zones. These are government-designated ‘special tax sites’ where a number of tax reliefs have been afforded, one of which relates to employer’s NIC.
The annual salary threshold at which employer NI starts to be payable is, and will remain after 6 April 2025, above £25,000, rather than above £5,000.
Employers will need to have business premises located within one of these ‘special tax sites’.
Employees will need to meet the following criteria:
1. Spend at least 60% of their working time on the special tax site
2. Began employment between 6 April 2022 and before: 30 September 2031 (for English Freeport tax sites) or 30 September 2034 (for Scottish Green Freeport, Welsh Freeport, and Investment Zone sites).
3. Are within the first 36 months of their employment
4. Have not been employed by the business (or a connected employer) in the preceding 24 months
For further guidance, HMRC provides detailed examples here.
1. Review workforce composition
Identify categories of employees (e.g. under-21s, apprentices, veterans) where employer NIC reliefs might apply, and ensure hiring policies reflect these benefits.
2. Assess location benefits
If operating in or near a Freeport or Investment Zone ‘special tax site’, evaluate eligibility for relief and consider the potential benefits of establishing premises within these areas.
3. Plan for the cost impact
For employees outside these reliefs, calculate the financial impact of the changes and explore cost mitigation strategies, such as salary sacrifice opportunities.
4. Seek professional advice
Given the complexity of these changes, consulting a tax professional can help businesses navigate the new rules effectively, ensuring compliance while minimising financial strain.
A key problem is that HMRC’s previous guidance on non-cumulative preference shares had not been particularly contested; it was common practice to treat such shares as part of the OSC. Does this mean their new guidance should be scrutinised?
The opinion of the Judges in Warshaw could be seen as endorsing HMRC’s current guidance. Does that mean the old guidance was wrong? What is the position if someone claimed BADR previously, but only on the basis of the old guidance?
There are perhaps more questions than answers arising from this updated guidance. What is paramount is that companies and shareholders review share structures in light of this change and consult with tax professionals to understand the impact this may have on their financial and tax planning strategies.
The upcoming changes to employer’s NICs represent a substantial challenge for businesses. However, by understanding and leveraging the available exemptions and reliefs, employers might be able to mitigate some of the additional burdens.
For tailored advice on how these changes may impact your business, don’t hesitate to reach out. As always, careful planning is key to staying ahead. Contact us here.