Prepare for a Rise in National Insurance Contributions

You’ll no doubt have seen the news of a rise in both employee and employer National Insurance Contributions (NIC). It’s been a contentious move by the Government, with some people seeing the policy as a necessary way of generating extra revenue for the NHS and social care, and others questioning whether a tax on workers is a positive step at this stage of the pandemic.

Regardless, the NIC rise is on its way and it’s going to have a significant impact for you and your workforce. We’ve highlighted the main changes so you can prepare for them as best as possible.

When will National Insurance Contributions increase?

As of December 2024, the UK government has implemented significant changes to National Insurance Contributions (NICs). Unlike the increases planned in 2021, recent adjustments have actually reduced NICs for most workers. Employee NICs were cut from 12% to 10% on 6 January 2024, and further reduced to 8% on 6 April 2024.

For self-employed individuals, Class 4 NICs have decreased from 9% to 6%, and Class 2 contributions have been abolished entirely.
However, employers should note that from 6 April 2025, their NIC rate will increase from 13.8% to 15%, with the secondary threshold lowering from £9,100 to £5,000.

The Employment Allowance will also rise from £5,000 to £10,500. These changes aim to provide tax relief for workers while adjusting the overall NIC structure. It’s important to stay informed about any future announcements in the government’s budget statements for potential additional modifications to the NIC system.

The effect on individuals

Let’s start by looking at individuals and how the National Insurance increase will impact salaries, dividends and those in self-employment.

Salaries

For employees, National Insurance rates have decreased:
The main rate for employees fell from 12% to 10% on 6 January 2024
It further reduced to 8% on 6 April 2024
Employees now pay:
8% on earnings between £12,570 and £50,270
2% on earnings above £50,270
For example:
For a salary of £30,000 p.a., NIC is now approximately £1,394
For a salary of £60,000 p.a., NIC is now approximately £3,770
For a salary of £100,000 p.a., NIC is now approximately £4,570

Retirement age workers

The separate Health and Social Care Levy was not implemented as planned. Individuals working beyond state pension age continue to be exempt from paying NICs.

Dividends

Dividend tax rates remain unchanged from the 2022/23 tax year:
8.75% for basic rate taxpayers
33.75% for higher rate taxpayers
39.35% for additional rate taxpayers

Self-employed

For self-employed individuals:

• Class 2 NICs have been abolished for those with profits above £12,570
• Class 4 NICs rate has been reduced from 9% to 6% on profits between £12,570 and £50,270
• The rate remains 2% on profits above £50,270

Self-employed with employees

If you’re self-employed and have employees working in your business, you’ll also be subject to the same additional costs as any other employers – see below.

The effect on businesses

There are also multiple impacts of the National Insurance increase for employers.

Employers

From 6 April 2025:

• The employer NIC rate will increase from 13.8% to 15%
• The secondary threshold will be lowered from £9,100 to £5,000

Employer’s allowance

The Employment Allowance will increase from £5,000 to £10,500, and all eligible businesses will be able to claim it regardless of their previous year’s NIC liability.

Fringe benefits

The Class 1A and 1B rates on benefits in kind will increase in line with the employer NIC rate to 15% from April 2025.

Directors’ loans

The Section 455 charge on overdrawn directors’ and shareholders’ loans has increased to 33.75% for loans made on or after 6 April 2022, while loans made prior to this date remain at 32.5%. This tax applies to outstanding loan amounts if not repaid within 9 months and 1 day and can be reclaimed once the loan is settled. Companies should manage these loans carefully to minimise tax liabilities and ensure proper cash flow.

How will the changes impact your business’ financial plan?

If you’re a limited company, your National Insurance costs for employees will decrease due to the reduction in employee NICs from 12% to 8% in 2024. For unincorporated businesses, the impact will be positive due to changes in Class 4 National Insurance. Contributions for self-employed individuals will decrease from 9% to 6% on profits between £12,570 and £50,270, while the rate above £50,270 remains at 2%.

Additionally, Class 2 NICs have been abolished for self-employed people with profits over £12,570.

These changes should result in cost savings for most businesses, which can be factored into your financial plan and budget for 2024-2025.

Talk to us about preparing for the NIC changes

To prepare for the recent NIC changes, it’s essential to incorporate them into your financial plan for 2024-2025. Our team of chartered accountants in Andover can help you create accurate forecasts, ensure compliance with new rates, we can also assist in obtaining funding for your business and reviewing its performance against budgets. To discuss the implications of the NIC rise for you and your business further and how Hysons can help you prepare for it, get in touch with us today.