The Salary Calculator

New data from the Financial Conduct Authority (FCA) paints a troubling picture of UK finances.

According to a recent survey from the UK’s financial regulatory body, one in 10 have no cash savings, and a further 21% have less than £1,000.

As purse strings tighten and money worries mount, this week at The Salary Calculator, we’ll look at:

• What the findings reveal about the UK’s financial challenges 
• What’s driving these challenges
• Tips for navigating financial crisis
• The role employers play in supporting financial difficulties
• Proposed changes to provide support

What do the findings reveal about the UK’s financial challenges?

The FCA first started collecting data on the UK’s financial circumstances back in 2017, with its latest report presenting the body’s fourth snapshot. 

Having gathered responses from nearly 18,000 people, the survey provides a comprehensive profile of UK finances.

First, the good news.

Digital exclusion is down to 2% from 14% in 2017, and the number of people using debt advice is up (3.2% in 2024 versus 2.7% in 2022), with many finding their debts more manageable after seeking advice (61%). 

However, when it comes to financial resilience, one in four (13.1 million) are struggling, facing low savings, missed bills and heavy debt burdens. 

A total of 4.6 million people are without a financial buffer and say they would be unable to cover their living expenses for up to one week if their main household income source was lost. 

These stats are echoed by data from YouGov in March, which revealed that 56% of Britons said they’d been affected by cost of living pressures, with 22% unable to make ends meet and afford essential costs. 

“On the frontline of debt advice, we see every day how a lack of financial resilience pushes people into financial difficulty. Without rainy day savings or access to affordable credit, it can be harder to cope with life events and shocks, like falling ill, splitting up with your partner or losing your job,” commented Grace Brownfield, head of influencing and communications at National Debtline.

And without a parachute, borrowing is on the rise. The use of high-cost credit was up in 2024 (6.4%) from 2022 (5.3%), while 2.8 million (5%) said they had persistent credit card debt. 

The survey also found that more people are using Deferred payment credit (DPC), otherwise known as unregulated Buy Now, Pay Later (BNPL).

In 2024, 20 per cent of adults were found to have used DPC in the last 12 months, and 17% of all DPC users used it frequently. Among the most frequent users were lone parents (40%) and women aged 25-34 (35%).

What’s driving these challenges?

These figures come against a backdrop of rising rent, food prices and energy bills.

Indeed, in April, ONS data found that cost of living ranked as the most important issue facing the UK today. 

The same survey revealed that 72% had seen their cost of living increase in the last month — up from 66% in March — with 92% putting this down to their food shop becoming more expensive and 80% attributing this to higher energy bills. 

And amidst a number of new benefit changes, organisations have raised the alarm that, for some, tougher times could be ahead. 

In April this year, a nationwide freeze on housing benefits came into effect. At the time, national homelessness charity Crisis said the freeze represented a real-terms cut and warned it would push more people “out of the private rented sector and into homelessness.” 

Now, a new poll commissioned by The Salvation Army has revealed that, in the shadow of the freeze, 48% of those surveyed were worried an extra £100 expense would leave them unable to pay their rent or mortgage. 

Tips for navigating financial crisis

These mounting financial struggles are having a knock-on effect on people’s mental health and wellbeing, too. 

According to the FCA data, twenty-two per cent of adults disclosed that they felt overwhelmed and stressed when dealing with financial matters, a statistic which has remained unchanged since 2022. Meanwhile, 40% of those with credit or loans said that they suffer with either anxiety or stress as a result of their financial situation.

Of those suffering from poor mental health — around 9 million adults — 25% said they put off dealing with financial matters, and 18% had fallen into debt as a result of not wanting to deal with their financial situations. 

Alongside this, research from the Money and Mental Health Policy Institute shows that people with problem debt are “significantly more likely to experience mental health problems,” with 46% of those in debt also suffering from a mental health problem. 

“If you’re struggling with your finances, the best thing to do is seek debt advice”

“Financial challenges can deeply affect mental health, often leading to anxiety and depression,” said Norma Cassius, a money management consultant and psychotherapist. 

Cassius advised that support from organisations like StepChange and MoneyHelper can provide guidance and a “safe space to share struggles,” while highlighting the importance of creating a realistic budget, which she said is “easily done” with free budgeting tools in banking apps.

“If you’re struggling with your finances, the best thing to do is seek debt advice,” Brownfield said. “Nine in ten people we helped at National Debtline last year saw their debts reduce or stabilise, while three in four reported a positive impact on their emotional or mental health.”

But despite the benefits, the FCA survey found that embarrassment can be a barrier to accessing help. 

“It’s crucial to break the stigma around seeking debt advice, especially during the current cost-of-living crisis affecting us all. By fostering open conversations and sharing recovery stories, we can inspire hope and encourage others to seek the help they need,” said Cassius. 

What role do employers play in supporting financial wellbeing? 

According to experts, employers also play a central role in supporting financial wellbeing. 

“As the main income provider, they’re uniquely placed to offer practical financial wellbeing support, from access to affordable loans and guidance to helping people build confidence through simple steps like creating a spending plan or managing debt,” said Abby Birch, financial wellbeing and money expert at My Money Explained. 

Adding: “Without action, the risks are real: stress, lost productivity, and higher turnover. Supporting financial wellbeing isn’t just a nice-to-have; it’s essential.”

Indeed, the Chartered Institute of Personnel and Development’s (CIPD) 2025 Good Work Index (GWI) revealed the extent to which financial wellbeing and work performance are linked.

“Supporting financial wellbeing isn’t just a nice-to-have; it’s essential”

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A survey of 5,000 employees revealed that: 

• For 31%, money worries had negatively affected their work performance
• Nineteen per cent had lost sleep due to worrying 
• Fifteen per cent said financial concerns had caused health problems like stress
• Thirteen per cent said their worries made it hard to concentrate or make decisions at work. 

The CIPD outlined that employers can support workers through this by ensuring that pay outcomes and processes are fair, paying workers as much as is affordable, becoming an accredited Living Wage Employer, and creating support mechanisms to reduce the risk of employees falling into financial difficulties. 

Meanwhile, Conor D’Arcy, Head of Research and Policy at the Money and Mental Health Policy Institute, shared with Mind that providing mental health training to line managers can be a helpful tool for recognising when employees are struggling.

Flexible working can also be beneficial, D’Arcy explained: “It means they might have time to access external help, such as visiting a financial advisor. It also might allow parents or those with caring responsibilities to better manage their time to avoid some of the additional costs these responsibilities can bring.”

What proposed changes could help provide support? 

The FCA has also outlined a number of measures aimed at supporting consumers. According to the body, this includes setting “high standards” through the implementation of the Consumer Duty, supporting the government to develop a national plan for financial inclusion, and its InvestSmart campaign, geared towards helping consumers make “better-informed investment decisions.”

“We need to do more at a national level to prevent financial difficulty occurring”

Meanwhile, from a policy perspective, new rules are coming into effect next year to bring BNPL in line with other types of credit. According to Emma Reynolds, Economic Secretary to the Treasury, these new rules will protect shoppers from debt traps.

Brownfield told The Salary Calculator that the government’s Help to Save scheme can be useful for building up a small safety net for those who are eligible but added that more action should be taken at a national level. 

“We need to do more at a national level to prevent financial difficulty occurring. Government must ensure the welfare system provides adequate and effective support when people experience life shocks and make building financial resilience a new national mission,” added Brownfield.

This was echoed by Richard Lane, Chief Client Officer at StepChange Debt Charity, who called for the government to expand the Help to Save scheme and work with employers to expand workplace savings schemes.

“We also want to see the Government invest in safe options for those who can’t afford to save to cope with unexpected costs, including a permanent national crisis support scheme, building on the Household Support Fund and a national no-interest loan scheme, and by working with the financial services industry to expand affordable, low-cost credit.”

Elsewhere, Helen Undy, Chief Executive of the Money and Mental Health Policy Institute, outlined that banks need to make their services accessible and offer people more tools and support to “stay in control of their finances and savings,” from spending controls to carers’ cards. 

Undy added that the organisation also wanted to see the FCA “go further” in making sure firms act on their obligations under the Consumer Duty to deliver better outcomes for customers.

Whether it’s selling vintage shoes or taking on tutoring clients, so-called side hustles have exploded in recent years. In fact, last year, Sage research found that almost half of Brits now have a second income stream.

But, as more people enter the online entrepreneurial pipeline, it’s important to have a clear picture of compliance to keep the taxman from knocking. This week at The Salary Calculator, we’ll explain:

• What’s driving the rise in people selling goods & services online?
• What’s the difference between a side hustle and reselling?
• What are HMRC’s new digital platform reporting requirements?
• What’s happening to the Income Tax Self Assessment (ITSA) reporting threshold?
• Will the allowance threshold increase?
• How will Making Tax Digital affect side hustles?
• Tips and tools to help you stay compliant

What’s driving the rise in side hustles?

Side hustles bounced into the spotlight during the COVID-19 pandemic as the world shifted online and companies cut back on jobs and furloughed staff. And amidst an ongoing cost of living crisis, employment insecurity and a looming recession, the side hustle trend has continued as workers eye new avenues to supplement their income — with varying degrees of success.

According to a 2024 Adobe Express poll of 1,500 Brits, 73% make up to £500 each month from their side hustle, while 20% make over £1,000.

But money isn’t the only driving force behind this rising trend. The research found that 22% of those seeking side hustles are doing so in pursuit of greater flexibility in their work schedule.

The growth of the second-hand market has buoyed growth, too. Nearly 30 million UK adults shopped online for pre-loved items in 2024. Accommodating this demand, 23.8 million Brits turned to online second-hand selling platforms last year, earning an average of £146 a month.

“There’s been a big increase in the secondary selling of technology”

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The second-hand tech market, in particular, is booming.

“What we’ve seen is that — certainly around smart tech — there’s been a big increase in the secondary selling of technology,” said Scott Butler, executive director of the non-profit group Material Focus. Butler explained that consumer attitudes are changing, with more emphasis placed on affordability over upgrades.

Indeed, in 2023, technology retailer Currys found that one in three Brits were likely to buy second-hand tech, with pre-used electronics exceeding pre-loved clothes in popularity.

But alongside a growing appetite for affordable goods, environmental concerns are also a key driver of this trend. Currys’ research found that 75% of those polled were worried about e-waste — one of the fastest-growing waste streams in the world.

And with the average household hiding around 30 unused electrical items in so-called “drawers of doom,” there’s plenty of money to be made. In fact, Material Focus found that households could cash in between £1,304 and £6,331 by selling unwanted items through reselling platforms.

What’s the difference between a side hustle and reselling?

But with more Brits looking to make a little cash on the side and pursue their passions, it’s important to understand how this work is categorised in the eyes of HMRC — because there are potential tax implications.

And with misleading “side hustle tax” headlines floating around, there’s been a fair amount of confusion.

Luckily, HMRC has released guidance to clarify who needs to pay what and how.

It all boils down to whether or not you’re trading. If you’ve got an old pair of shoes that never quite fit kicking about in the back of your wardrobe and you’re looking to shift them, this isn’t trading. So, you don’t need to register for self-assessment or pay tax (unless an item exceeds £6,000, in which case you’ll need to pay capital gains tax.)

However, regularly making necklaces to sell online, buying vintage items to resell for a higher price, or upcycling items for resale would be considered trading. This also applies to dog-walking, content creation, gardening and similar activities.

If you earn £1,000 or less from these activities, you won’t need to declare or pay tax, but if you exceed this amount, you’ll have to set up as a sole trader and pay tax via Self-Assessment. 

What are HMRC’s new digital platform reporting requirements?

So, what was all the “side hustle tax” hullabaloo, I hear you ask? Well, the confusion came from HMRC’s announcement that from January 2025, online platforms like eBay, Vinted, and Airbnb would have to share data on platform sellers, including income data.

As the Low Incomes Tax Reform Group outlined, this means that if online sellers have failed to pay what they owe, HMRC is “more likely to find out about it,” and platforms may ask more questions when users sign up to ensure that they’re HMRC-aligned.

However, it’s worth noting that if you make fewer than 30 sales of goods in a year and receive less than 2,000 euros (roughly £1,700), a platform won’t report your details.

If a platform fails to follow the new rules, however, there are various financial penalties.

What’s happening to the Income Tax Self Assessment (ITSA) reporting threshold?

One change that will eventually affect sellers more directly is the recently announced plan to increase the Income Tax Self Assessment (ITSA) reporting threshold.

Under the new plans — set to come into effect within this parliament — the Income Tax Self Assessment (ITSA) reporting threshold for trading income will increase from £1,000 to £3,000.

According to HMRC, this will benefit “around 300,000 taxpayers,” with an estimated 90,000 no longer needing to pay tax with no reason to report their trading income to HMRC. Those who do will pay their tax through a new online service — although further details about this service are yet to be announced.

Helen Christopher, chartered accountant and founder of Beansprout, said for many, this is good news, reducing the compliance burden and saving both time and money for those running very small businesses or hobbyist activities.

“From an HMRC perspective, this change frees up resources to focus on larger or higher-risk cases and aligns with their longer-term ambition to simplify tax reporting and roll out more digital services under Making Tax Digital,” added Christopher.

Will the allowance threshold change? 

Although there have been some reports that the allowance threshold is increasing to £3,000, this isn’t the case. However, some argue that it should be.

One joint study from Simply Business and The Federation of Small Businesses recommended that the tax-free trading allowance be doubled to £2,000 and rebranded as the “Side Hustle Allowance” to encourage entrepreneurship in the UK.

More broadly, with the government’s renewed focus on the circular economy, some wonder whether tax policy could be used to encourage progress in this area.

Indeed, Butler highlighted the school of thought that questions whether second-hand goods should be taxed again after a series of taxes have already been paid by producers, retailers and consumers the first time around.

“If you look at it from an environmental perspective and a resource use perspective, that is a potential lever that you could use to promote a more circular economy through making it less burdensome,” commented Butler.

He added that there are also those who advocate for VAT exemptions for repair services to make them more affordable and encourage uptake. This kind of reduced taxation has already been implemented for repairs for different products across Sweden, Austria, and the Netherlands.

How will Making Tax Digital affect online sellers? 

Another incoming tax administration strategy set to affect online sellers and side hustlers is Making Tax Digital.

From April 2026, sole traders and landlords earning £50,000 will be required to keep digital records, use MTD-compatible software and submit quarterly summaries of their income and expenses to HMRC.

By April 2027, this will apply to those with qualifying income above £30,000, and from April 2028, those with £20,000 in qualifying income will enter the compliance bracket.

“The changes will inevitably feel daunting, overwhelming, and costly for many online sellers and small business owners”

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Christopher described the Making Tax Digital strategy as a “fundamental shift towards a real-time, digital-first tax system, designed to modernise the UK’s tax processes and increase transparency.”

The impact that these changes will have remains to be seen, but some have doubts about their effectiveness.

“Until MTD ITSA fully hits in 2026, I don’t think we can completely foresee how it’s going to go, but I struggle to see how forcing people onto software that struggle with technology makes anything simpler,” commented Beth Jackson, Owner of 2 Sisters Accounting, adding: “I do hope much like when RTI was initially introduced, any penalty schemes will be incredibly lenient while people get to grips with the system.”

Christopher shared a similar sentiment. “While the intention is to streamline processes and improve tax compliance, the changes will inevitably feel daunting, overwhelming, and costly for many online sellers and small business owners — especially those who manage their finances informally or who have only recently started side businesses.”

That said, Christopher added that it also serves as an opportunity to “take greater control of your business finances,” creating more clarity around income and expenses, better forecasting of tax bills throughout the year and fewer year-end surprises.

Tips and tools for keeping compliant 

As with any business, big, small, or just starting out, there are always moving parts, so it’s key to keep on top of things and establish good habits.

“Building strong financial habits now can make the difference between a hobby and a thriving, scalable business in the future,” Christopher explained.

This includes careful record-keeping of income and expenses, whether through accounting apps or spreadsheets.

“The key thing for all businesses is to make sure you are saving your tax as you earn the money to avoid spending HMRC’s money, especially if you’re VAT registered,” added Jackson. “As an online seller, using tools like Linkmybooks to connect with Xero or Freeagent to track your profit levels and make sure you have the appropriate tax saved can make the world of difference in remaining profitable!”

It’s also important to understand different tax terms, for example gross income vs net profit, as well as HMRC’s other rules and regulations.

“Always check your total financial position,” Christopher noted, adding that if you have employment income, pensions, rental income, dividends, or other sources, you may still need to complete a tax return, even if your side business earns under the reporting threshold.

And, when things feel confusing, professional advice can help clear things up.

“Tax rules can be complex, and everyone’s situation is different. Speaking to an accountant or adviser early can save money, reduce stress, and help you get it right from the start,” said Christopher.

Council tax is one of the many household bills that are rising this month. Where you live and your property’s tax band will determine how much you pay. However, this year, few will escape the rise. 

As day-to-day life gets more expensive, Citizens Advice says one in three people are now “living on a financial knife edge,” with arrears on household bills up 25%.

Against this backdrop, this week at The Salary Calculator, we’ll walk you through: 

• How much will council tax increase?
• Why is council tax rising?
• Are you eligible for reductions or exemptions?
• Can you challenge your council tax band? 
• What happens if you don’t pay?
• Where can you find support for council tax debt?
• How to manage your money in the months ahead

How much will council tax increase?

Each year, councils are allowed to increase council tax by up to 4.99% without triggering a local referendum.

In 2025, 88% of authorities have decided to increase council tax by the maximum amount, and six have been granted permission to exceed this threshold by up to 10%: 

• Birmingham (7.49%), 
• Somerset (7.49%), 
• Trafford (7.49%), 
• Newham (8.99%), 
• Windsor and Maidenhead (8.99%)
• Bradford (9.99%).

A property’s council tax band determines the occupant’s tax bill, and in England, this is calculated based on how much the property would have sold for in 1991.

The more expensive a property is, the higher the council tax bill, with A being the lowest and H the highest. 

April is also bringing changes to how second properties are charged. From April, if a property is not a main residence, councils can charge a council tax premium of up to 100% unless it qualifies for exemption. 

Why is council tax rising?

According to a spokesperson for the Local Government Association (LGA), a body which represents councils in England, “severe funding shortages,” alongside “soaring cost and demand pressures on local services,” are the driving forces behind the hike. That said, the LGA noted that council tax increases alone won’t keep local services afloat. 

Indeed, in March, the County Councils Network (CCN), which represents England’s biggest councils, warned that without action in the next 12 months, rising SEND services costs could “trigger a wave of bankruptcies”. 

Already, a total of six councils have declared bankruptcy since 2021, including Birmingham City Council, which folded in 2023 following an equal pay dispute and a botched IT system. 

“7 million people in the UK are behind on at least one household bill”

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Accusations of mismanagement have also been levelled against some councils, with “speculative” investments behind others’ cash flow issues.

In a statement to parliament in February, Secretary of State Angela Rayner said: “We recognise the importance of limited increases in helping to prevent these councils falling further into financial distress – but we have been clear this must be balanced with the interests of taxpayers.”

However, research shows that many taxpayers are already struggling to make ends meet. 

“We know that currently, household budgets are incredibly stretched – our latest research found that 7 million people in the UK are behind on at least one household bill, including council tax,” said Grace Brownfield, Head of Influencing and Communications at the Money Advice Trust, the charity that runs National Debtline, adding that there is “little sign of respite for many across the country.”

Are you eligible for reductions or exemptions?

That said, if you are on a low income or claiming certain benefits, you could be entitled to a Council Tax Reduction.

Eligibility depends on a number of factors, including individual circumstances and where a person lives, as each council has its own scheme.  

Some individuals are also eligible for council tax exemption. You can read more about the exemption process and who qualifies here. 

Likewise, if you’re the only person in your home over the age of 18, you’re entitled to a 25% council tax discount. 

Can you challenge your council tax band? 

With the last valuation in England taking place in 1991 (2003 in Wales and 2005 in Northern Ireland), many properties are believed to be in the wrong tax band. 

You can challenge your band if you believe this is the case or if changes have been made to your property, its use, or the local area. 

That said, it’s important to note that your band can either go up or down. 

There are a number of checks that you should carry out before challenging your band. This includes checking your neighbours’ band and your home’s value with a valuation calculator. 

According to the government’s Valuation Office Agency (VOA), between April 2023 and March 2024, 27% of those who challenged their council tax band were successful in securing a reduction. 

What happens if you don’t pay?

Missing a council tax payment means that you’re in arrears, and amidst rising costs, more and more people are finding themselves in this situation. 

In June 2024, figures from the Ministry of Housing, Communities, and Local Government revealed that outstanding council tax arrears reached £6 billion. That’s a 9% year-on-year rise and a 71% increase since before the pandemic, according to debt charity StepChange. 

If you miss a payment, the council will send a reminder, giving you seven days to pay, but if this bill isn’t paid within the seven-day window, you’ll no longer be able to pay council tax in instalments. 

“If you are facing financial difficulty, the best time to seek support is now”

Councils only send two reminders in a year, so if you’re late on a third payment, you’ll be sent a final notice requesting payment for the whole tax year.

After this, if you don’t pay, you’ll be sent a summons, incurring an additional fee, and this may require you to appear before the Magistrates Court. 

Failure to pay or explain why you’re not liable following this could result in the council applying for a Liability Order — this grants a council legal power to recover your debt. If granted, this will add an additional charge to your bill, and the council will be able to take a number of different actions to recover the debt. 

This can include deductions from wages and benefits, passing the debt to Enforcement Agents (bailiffs), making an application for bankruptcy or liquidation, and applying for a charge on your home.

In July, a BBC investigation found that bailiff referrals have risen by nearly 20%. The process has been the subject of much criticism over the years due to both poor practices on the part of bailiffs and the mental health impact on individuals. 

The most extreme action taken against council tax non-payment is an application to the court for a prison sentence of up to three months. 

England is now the only part of the UK that has retained the imprisonment sanction for unpaid council tax.

Where can you find support for council tax debt?

Indeed, as a priority debt, council tax comes above other household bills and carries significant risks if you fall behind on payments, meaning it’s important to address arrears head-on. 

“If you are facing financial difficulty, the best time to seek support is now. You can contact your local authority if you are struggling and ask them to agree to a payment plan,” explained Emily Whitford, Senior Public Policy Advocate at StepChange. 

“An independent, free and impartial debt advice charity like StepChange can also assess your income and expenditure and assess where savings can be made to pay towards debts. In some cases, a debt solution may be necessary to address your financial difficulty,” she added.

Brownfield echoed this, noting that while worrying about debts and wondering how to tackle them can feel “overwhelming,” it doesn’t need to be. 

“There is a wealth of support out there to help,” said Brownfield, adding that speaking to a free debt advice service, like National Debtline, is a “great first step.”

“You can call, webchat or get advice online. Talking to our experts can help you understand the best option for you and alleviate debt-related stress,” added Brownfield. 

Brownfield noted that services like National Debtline — or Business Debtline if you are self-employed — provide free, expert, impartial advice to help people deal with their debts. 

Head over to StepChange and Citizens Advice for more information about accessing support. 

How to manage your money in the months ahead

While council tax exemptions, reductions and refunds will go some of the way to help with rising costs, there are additional steps you can take to manage your money in the months ahead. 

Getting a clear picture of your finances is a good starting point. According to Brownfield, this begins with opening all of your statements. 

“It can be extremely tempting to ignore the envelopes or emails but resist the urge to leave them alone. Take a deep breath, open all of your statements and get a handle on how much you owe. Make a list of all your debts, including the outstanding balances and repayment dates,” she said. 

Brownfield also highlighted the importance of speaking to your creditors, noting that they will have a range of options to help you, depending on your situation. “While it can seem daunting, talking to your creditors or utility providers, if you’re struggling to pay your bills, is a really important step.”

“The National Debtline has template letters and emails you can use to get in touch with your creditors and explain your situation,” added Brownfield. 

Budgeting and expense tracking are also tools that can help you identify your spending habits and pinpoint any areas where you can cut back. 

“Working out how much you have coming in every month and what you need to spend on essential costs is often the single biggest step you can take,” said Brownfield, adding that the National Debtline’s My Money Steps tool can help guide you through this process.   

Finally, check whether you’re eligible for extra support. Last year, a report from social policy software and analytics company Policy in Practice (PIP) found that £23 billion of support is unclaimed each year, meaning you could be entitled to claim benefits. Brownfield noted that you can check what you are entitled to using the Turn2Us online benefits calculator.

April’s hotly-debated Employer National Insurance (NI) rise is fast approaching. A big ticket item in the Autumn Budget, the increase has been met with unease by some, concerned it will tighten purse strings, cut jobs and raise prices. But while change is incoming, it’s not all doom and gloom. 

If you’re wondering what this means for you, The Salary Calculator is here to clear up the confusion. This week, we’ll be answering: 

• How is Employer NI changing?
• Why are Employer NI rates increasing?
• What do the changes mean for businesses?
• How will the changes affect you?

How is Employer NI changing?

Back in October, Chancellor Rachel Reeves announced that in the new financial year Employer National Insurance — a tax employers pay on top of employee wages — will be increasing from 13.8% to 15%. 

The Autumn Budget also delivered news that the threshold at which employers pay NICs on employees’ earnings will decrease from £9,100 a year to £5,000. 

However, alongside this, Employment Allowance — which allows employers to reduce their annual National Insurance liability — will increase from £5,000 to £10,500, and the £100,000 eligibility cap will be removed, meaning more employers will qualify. 

The changes to Employment Allowance, Reeves said, will help “protect” the smallest companies. 

“This means that 865,000 employers will not pay any national insurance at all next year, and over 1 million will pay the same or less than they did previously,” the Chancellor explained.

These changes will be effective from 6 April 2025.

It hasn’t all been plain sailing, though. Peers in the House of Lords (HoL) voted to exempt care providers, charities, and small businesses from the rise, resulting in ‘ping pong’ between the two chambers. That said, the HoL amendments are “likely to be overturned” in the House of Commons (HoC), according to the Chartered Institute of Taxation (CIOT).

Why are Employer NI rates increasing?

According to Reeves, the changes to Employer NI aim to raise revenues to fund public services and “restore economic stability.”

Indeed, the Budget committed to providing an additional £22.6bn for the Department of Health and Social Care (DHSC) across the next two years and a £3.1bn increase in the capital budget.

Reeves called this a “record injection of funding” and the “largest real-terms growth in day-to-day NHS spending outside of Covid since 2010.”

The Employer NI increase, expected to raise £25bn, is part of a larger £40bn in tax rises. However, according to 2023 projections from the Centre for Progressive Policy (CPP), far more is required to keep public services afloat. The CPP estimates that the government will need to find an additional £142bn per year by 2030 “just to maintain current levels of public services.”

What do the changes mean for businesses?

The incoming changes mean some companies are facing higher costs. When assessing the effects of the government’s new policy measures, the Office for Budget Responsibility (OBR) said the NIC rise will increase employer payroll costs by just under 2%.

But it’s important to note that the bill footed by employers will vary depending on how much workers earn.

According to the Institute for Fiscal Studies (IFS), for each median earner (£33,000), employers are facing an additional £900. Meanwhile, for a full-time minimum wage worker (£22,000), the increase will look more like £770. 

“SMEs, in particular, will bear the brunt of this additional tax burden”

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“Whilst smaller employers might not feel the impact due to the rise in the employment allowance, SMEs, in particular, will bear the brunt of this additional tax burden,” said Emily Gaffney, Freeths Taxation Senior Associate, in a statement to The Salary Calculator.

This is echoed in new findings from iwoca, revealing that 66% of SME leaders estimate the rise will “cost them each over £10,000.”

How will the changes affect you?

Although the NIC rise won’t directly affect take-home pay, some businesses will be looking to find ways to offset the increase, which, in some cases, could impact workers and consumers. 

Indeed, in October, the CIOT warned that the changes to Employers NI could have “unforeseen consequences,” including businesses seeking “alternative arrangements to taking on people as employees.”

“Alternatives could include outsourcing or offshoring services and reducing the numbers of employees,” said Eleanor Meredith, Chair of CIOT’s Employment Taxes Committee.

The Chartered Institute of Personnel and Development (CIPD) reported that this is a move that 32% of the 2,000 firms it recently surveyed plan to make, with companies reducing headcount through “redundancies or recruiting fewer workers.”

Likewise, the National Insurance Pulse Survey by Towers Watson, which spoke to over 200 respondents from various industries, found that 28% are looking to make workforce cuts, and 33% have reduced planned salary increases.

The IFS has claimed that “just £16bn” will be raised from the Employer NI increase due to this impact on wages.

Reflecting on the situation, Gemma Alicia Long, HR Consultant and Director of HR & Co, said that small businesses are having to make “difficult decisions” to mitigate the increase in NI costs and safeguard their businesses.

“For some, this may result in job losses,” said Long. 

These cascading impacts have led to some questioning whether the increase breaks the government’s pledge to “not increase taxes on working people.”

“The Labour party assured voters during the 2024 general election that there would be no tax increases on ‘working people’. From an economic perspective, there is a risk that an increase in employer national insurance, combined with the rise in the National Minimum Wage for young adults, becomes effectively that – a tax increase borne by working people,” said Gaffney. 

“Many companies plan to pass on the additional costs to consumers due to the increased operational costs”

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In hospitality, among the industries set to feel the biggest shock, trade bodies have warned that the changes will cost £1bn by bringing 774,000 into the eligible threshold. According to UKHospitality, in January, businesses were already making decisions to cut investment and jobs, freeze recruitment, and reduce hours.

Elsewhere, a survey of 52 leading retailers by the British Retail Consortium found that 56% plan to reduce ‘number of hours/overtime’ and 46% plan to cut back on ‘stores headcount’.

That said, according to the Trades Union Congress (TUC), employers are “more likely to absorb the increased contributions than shift the burden to their staff.”

Firms are also exploring price adjustments. “Many companies plan to pass on the additional costs to consumers due to the increased operational costs,” said Long. 

Indeed, data from the Office for National Statistics revealed that in late February, 49% of businesses with 10 plus employees shared their intentions to increase prices in response to future rises in employment costs. 

With the NIC changes right around the corner, Long notes that businesses will be looking to prioritise operational efficiency.

“Businesses are exploring cost-saving measures such as outsourcing and automation to maintain profitability without compromising service quality,” she said. 

Financial planning is also key. “Small businesses are revising their budgets and financial forecasts to accommodate the higher NI contributions, ensuring they maintain healthy cash flow and profitability,” said Long. 

However, as businesses seek to reduce costs with outsourcing, it’s key that employers are mindful of ‘false self-employment,’ something the CIOT has warned against. 

“We are concerned that the increase in employers’ NI could lead to an increase in ‘false self-employment’, where businesses trying to save money turn to arrangements where the worker is not directly employed by them, without necessarily appreciating the rules and risks of such arrangements,” said the CIOT’s Eleanor Meredith in October. Such arrangements can have consequences for both employers and employees. 

Another option for employers looking to minimise impact is salary sacrifice arrangements. A government-backed scheme, these arrangements reduce entitlement to cash pay in return for a non-cash benefit, which, in turn, can help save on NICs. Salary sacrifice arrangements come in many forms, including pension contributions, bike-to-work schemes and car schemes. For more insight into other avenues employers might explore to mitigate the NI rise, head here. 

Ultimately, with no rule book instructing employers on which option to choose, the impact of the rise will play out differently from business to business. But, for workers concerned about the consequences, the TUC advises that the National Living Wage and the Employment Rights Bill will provide “important protections.”

Chancellor Jeremy Hunt has given his Autumn Statement today, including a number of changes to National Insurance contributions for both employees and for the self-employed.

The standard rate of NI for employees (Class 1) will be reduced with effect from 6th January 2024 (i.e., before the start of the next tax year on 6th April), from its current 12% to a lower 10%. This rate of NI is paid by employees earning more than £12,570. The rate you pay on earnings over £50,270 will remain at 2%.  This change could save employees up to £754 per year.

The self-employed will also benefit from 6th April, with their (Class 4) NI rate being reduced from 9% to 8%, and Class 2 NI (£3.45 per week) being abolished.

If you’d like to see how much of a difference the NI change will make to your payslip from January, The Salary Calculator has been updated with the new NI rates, which are displayed in the results table in an extra “From January 2024” line. I hope that you find it helpful!