Employer NI and Allowances – Budget 2024

Post-October 2024 Budget: Employer NI and Allowances – What Does It Mean for You?

Following the recent budget announcements, you may be wondering how changes in Employer National Insurance (NI) and allowances will impact you. This article highlights the adjustments in Employer NI and allowances, along with tax tips to help you navigate these updates.

Are you an employer?

If you employ others, or you employ yourself or your spouse through a limited company, then you need to be aware of some changes from April 2025:

  • Employers NI will increase from 13.8% to 15% and the threshold lowered from £9,100 to £5,000.
  • The national minimum wage for employees will rise to:
Age Group New Rate Current Rate
21 and over £12.21 £11.44
18, 19 & 20 £10 £8.60
 16 & 17 £7.55 £6.40

NOTE :  The national minimum wage does not apply to directors, unless they have a contract of employment. It also does not apply to children under school leaving age (under 16) or if you employ your children who still live at home.

Tax tip – what salary should you plan to pay yourself in 2025/26?

  • Currently we recommend that you pay yourself £12,570, before withdrawing any remaining funds you need as dividends. This is because there is no employee NI on salary up to the personal tax threshold of £12,570 and the salary is allowed as a corporation tax deduction which can be worth up to 26.5% tax relief.
  • In 2025/26 you might be tempted to take just £5,000 so that no employer NI is payable. However, since the rate of employers NI of 15% is still less than the rate of corporation tax relief (minimum 19% but could be as much as 26.5%, depending on company profits for the year), we believe that in most cases it will still be tax efficient to pay a minimum salary of £12,570. The employer NI payable will be £1,135.50 and the corporation tax saving will be a minimum of £1,438.30 (on the extra salary of £7,570 above £5,000).
  • You need to take a salary of at least £6,500 in 2025/26 (£6,396 2024/25) to qualify for a credit for national insurance contribution purposes. This could be an important factor to consider when deciding the level of salary to pay your spouse or partner

Can you claim the employment allowance?

The government introduced the employment allowance ten years ago with the aim of helping small businesses with employment costs. It means that for those business that are eligible, no employer NI is payable up to a set level each tax year. From 2025/26, the level increases from £5,000 pa to £10,500 for each company, or group of companies. There are certain eligibility criteria but basically you can claim provided:

  • There are at least 2 directors, or 1 non-director, paid over the secondary threshold (£9,100 2024/25, £5,000 2025/26)
  • Not more than 50% of your work is in the public sector

Check the HMRC guidance for other eligibility criteria or contact us for further advice HMRC guidance – employment allowance

Tax tip

Consider employing your spouse or civil partner. We always advise that you only pay them a reasonable salary for work undertaken, and that you retain a record of tasks assigned to them.

If you make them a director too, they can be paid for ‘director services’, attending board meetings and reviewing accounts etc, which will provide additional justification for any salary paid.

 

Unlock the Full Potential of the Budget with Competex:

The budget has introduced some significant changes. At Competex, we break down the key changes and provide advice on how to use them to your advantage. Whether it’s for your personal taxes or business planning, we’re here to help you navigate the complexities.

For further information, please contact us at info@competex.co.uk or visit our website at https://www.competex.co.uk.

 

Explore Related Insights

To better understand the recent budget changes and their potential impact on your business, we recommend exploring the following articles:

 

Author: Kavit Sethi
Published on: Last updated: 18th November 2024