As widely anticipated, today's Autumn Budget will mean increased costs for employers in a number of areas.
First, and most eye-catchingly, is the increase in employers' National Insurance contributions which will apply from April 2025. The rate will increase to 15%, while the threshold at which NICs begin to be payable will decrease sharply to £5,000 from the current £9,100.
Along with the increase in the National Minimum Wage for all workers aged 21 and over to £12.21 per hour, this will mean increased costs for many businesses, particularly those with large numbers of lower-paid workers.
There is some assistance for smaller employers, as the Employment Allowance (which allows smaller business to reduce their National Insurance liability) will increase to £10,100 from the current £5,000.
Capital gains tax will also increase, with the lower rate increasing from 10% to 18%, and the higher rate increasing to 24%. However, in an apparent policy reversal, Business Asset Disposal Relief (formerly Entrepreneur's Relief) will be retained, which will be good news for participants in EMI schemes as well as business founders, although the tax rate will increase for those gains too.
Given the substantial rise in employer NICs from April, employers considering exits of senior/ highly paid staff (whether under settlement agreements or otherwise) may want to factor increased termination costs into their planning, including the timing of exits and payments. Statutory payments, such as statutory redundancy pay, will increase from April 2025, further adding to the likely costs of exits.
Similarly, employers will need to consider the impact of increased NI costs (as well as minimum wage costs) on their remuneration structures and hiring plans. The Office for Budget Responsibility expects many employers to “pass on” the additional costs to employees in the form of lower or nil pay rises over the coming years, but employers should bear in mind that, with only limited exceptions, employers' NI contributions cannot be recovered from employees. At the same time, low or nil pay increases may lead to an increase in dissatisfied staff and disputes over pay. Employers should ensure that communication over pay is handled carefully and with due regard for legal obligations towards employees, including any contractual right to an annual pay review/ increase and obligations under equal pay and discrimination law.
Another issue for employers is the proposed crackdown on the use of umbrella companies to avoid tax and National Insurance. Details will be published in due course but are likely to involve a shifting of the burden to recruitment agencies. It's anticipated to come into force in 2026. Employers should start looking at their use of umbrella companies now and consider how contract terms can be strengthened to mandate compliance.
Want to hear more from us? 
