With the Autumn Budget (opens a new window) hot off the press, our expert People Solutions team dive into the key updates and offer valuable insights into how these policy changes could impact you and your business.
What's been said in the Budget?
There are two significant increases around National Insurance (NI) that employers will have to consider:
From April 2025, employer National Insurance contributions will increase from the current rate of 13.8% to 15%.
There will also be a reduction in the threshold at which employer NI is paid from £9,100 to £5,000.
Initial analysis suggests that these two changes will generate £25 billion of revenue for the new Government.
We are likely to see a significant negative reaction from the employer community on this topic – with the obvious narrative being how it will impact recruitment and retention, particularly in sectors like retail and manufacturing, where employment cost margins are already at tight levels.
But with every challenge comes opportunities. UK Government appear to have pulled back on applying Employer National insurance to employers’ workplace pension contributions. Indeed, the whole topic of salary sacrifice has been left untouched by the Chancellor. Employers who have yet to introduce this can look at their existing benefit strategies to mitigate some of the increased employer NI costs. Pensions remain a very tax-efficient saving vehicle for employees and employers. Let’s not forget, other arrangements still exist to use salary sacrifice, with the main ones being electric cars, cycle to work schemes, and bonus waivers. Employee benefits remain a very attractive way to manage costs.
Here are the key updates for employers:
1. Employer National Insurance (NI) contributions will increase from the current rate of 13.8% to 15%, from April 2025
Although this change has no direct impact on employees, in the long term, employers may look to recover the additional NI cost by reducing employer pension contributions (where they are more generous than the statutory minimums), or by making changes to other employee benefits.
Employers who currently use salary sacrifice may look to alter this to mitigate their increased costs. Employers who are looking to make these changes may wish to take advice regarding the need for employee consultation.
For smaller employers, the amount they can claim back from HMRC will increase from £5,000 to £10,500.
2. The threshold at which employers become liable to pay NI will be reduced from £9,100 to £5,000, from April 2025
This will represent an additional cost for many employers. However, for small businesses with four employees or fewer, the Employment Allowance will increase from £5,000 to £10,500, while the former £100,000 eligibility threshold will be removed.
According to HMRC modelling, this means that 865,000 employers will pay no employer NI contributions next year, and more than half of employers will see either no change or pay lower NI costs.
3. Inheritance tax will be charged on ‘unspent pension pots’, from April 2027
The impact of this change will depend on the type of pension in place, and whether an income has already started to be paid. Most public sector pensions are ‘defined benefit’ (also known as ‘final salary’) arrangements that typically pay a lump sum and a dependant’s pension on death. These pensions are less likely to be impacted by the budget.
By contrast, ‘defined contribution’ pensions are likely to be impacted. These pensions (group personal pensions, Master Trust, Own Occupational trust and personal pensions, SIPP’s), currently allow the accumulated pension fund to be passed to an employee’s dependants free of income tax if paid as a lump sum upon the employee’s death before age 75. If the inherited fund is paid as an income to a dependant, it is liable to income tax at the recipient’s marginal rate.
Registered or excepted group life assurance benefits, which are paid via a discretionary trust, should continue to fall outside of the deceased’s estate. As such, these schemes should not be impacted by the budget.
Separately, the Budget extended the freeze on inheritance tax thresholds until 2030.
4. Personal taxation thresholds will increase by inflation annually, from the 2028/2029 tax year
Until 2028/2029, there will be no change to the current income tax threshold for employees. UK employees can earn £12,570 before paying income tax at basic rate of 20%. The higher rate and additional rate tax threshold levels will remain at £50,270 and £125,000 respectively. This excludes Scottish tax payers.
Other announcements
As a reminder, the following changes have already been announced and should be considered in budgeting for the forthcoming year.
Changes to Minimum National Wage and National Living Wage.
The National Living Wage paid to over-21s, will go up by 6.7% in April 2025, while the National Minimum Wage for 18 to 20-year-olds will see a 16% increase increasing from £8.60 to £10 per hour. Apprentices will see the largest rises, with hourly pay increasing from £6.40 to £7.55.
State Pension
The government remains committed to the triple lock. As a result, the basic state pension will increase by an additional £470 this year. Pension credit will increase from £11,400 to £11,850 per annum for a single pensioner.
Please note: the above summary covers the main aspects from the Autumn 2024 Budget that will affect employers. It excludes changes to allowances, capital gains tax, fuel duty etc that may impact employees personal circumstances.
Find out more
We'll be following up with more detail next week, as we take a deeper dive into what the budget will mean for you and your business.
Questions for the team, or want to find out more? Reach out to your pension consultant today.
