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How is Employer NI Changing and Will it Affect You?

by Madaline Dunn

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. 

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“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. 

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“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.”

 

Tags: Autumn budget, Employer National Insurance, national insurance

2023 Autumn Statement – changes to National Insurance

by Admin

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!

Tags: 2023, 2024, National Insurance, national insurance

The National Insurance threshold increase and what it means for you

by Madaline Dunn

In the midst of numerous cost of living hikes, it’ll likely be comforting to learn that as of 6th July, millions of people will be slightly better off as a result of the National Insurance (NI) threshold increase.

At The Salary Calculator, we’ll walk you through:

• How much the threshold has been increased by
• Why the threshold increase is happening
• How this will affect people
• How to check what difference it will make to your take home

How much has the threshold increased by?

From 6th July 2022, the threshold for National Insurance contributions increased from £9,880 to £12,570. This means that people will now have to earn additional £2,690 before paying towards National Insurance.

Why has the threshold been increased

Back in April, the government announced that despite the cost of living crisis continuing to worsen, NI would be increasing by an additional 1.25% in an effort to aid NHS recovery, and fund the Government’s share of social care. However, the government has now raised the NI threshold as part of what it’s called the Chancellor’s “wider vision for a lower tax economy.”

How will this affect people?

This threshold increase means that some people will see a boost in their July pay packets. Experts have outlined that those earning around £31,500, or less will notice the most significant difference. Moreover, the UK government has said that almost 30 million working people will benefit overall, with the average worker saving over £330 in the year from July.

According to a previous statement by the government, 70% of NI paying workers will pay less, and 2.2 million people will no longer be required to pay NICs as a result. According to figures by HW Fisher, those earning £14,000, will save around £342.37 a year, meanwhile those on £20,000 will see savings of £267.36.

A more in depth comparison of how the situation has fluctuated in recent months shows that someone earning £20,000 would have been faced with a monthly NI payment of around £104 before April. This then rose to £112 following the hike and now, as a result of the July changes, will drop to approximately £82.

That said, while any money saved is arguably a win, it’s important to put the savings into a broader context, Alice Haine, personal finance analyst at investment platform Bestinvest, for example, has noted that the £330 workers will save, “won’t stretch far when you realise that only equates to £27.50 a month”.

While Haine outlined that for some, £27.50 could be the difference between “having dinner every night and sometimes going without,” for many it will “barely make a dent in their budgets as they struggle to pay the household bills amid rampant inflation as soaring food, fuel and energy prices become the norm.”

Stevie Heafford, tax partner at accountancy firm HW Fisher, echoed similar sentiments and when asked if it will help to solve the current crisis, he said: “The very short answer is, no. Those with lower income will save more in pure monetary terms, but they will be more exposed to the general increases in cost of living as they are less likely to have any sort of ‘buffer’.”

How can you check what difference it will make?

You can review how much of a difference this will make to your take home pay by heading over to The Salary Calculator, where you will be able to figure out exactly how much you’ll save.

Tags: cost of living, Economy, national insurance, NI threshold, take-home pay

Changes to Self Assessment this year

by Madaline Dunn

The Self Assessment deadline is just around the corner, and by 31st January self-employed individuals must file and submit their Self Assessment tax return and pay any tax owed to HMRC.

While there’s still time to submit, it’s always best to complete your tax return as soon as possible, so you don’t risk making any silly mistakes and avoid getting hit with late penalties. Also, this year, there are some changes to Self Assessment to look out for.

At The Salary Calculator, we’ll walk you through:

• How to report Capital Gains Tax
• How to report Covid support measures
• How to access Self-serve Time to Pay
• What to watch out for

Capital Gains Tax reporting

Capital Gains Tax applies to those who have sold or ‘disposed of’ an asset, for example, a house that’s increased in value. From 6 April 2020 to 26 October 2021, this had to be reported and paid for within 30 days of completion. However, there is an update here, and for property disposals made on or after 27 October 2021, the “report and pay” deadline has been extended to 60 days.

If you’re registered for Self Assessment, it’s important to remember that you must report this on your tax return in the capital gains pages. That said, there are exemptions. If your only disposal is of your home and private residence relief applies, you don’t have to report this on the capital gains pages.

Reporting any Covid support measures

HMRC recently issued a warning to self-employed individuals that they must declare any COVID-19 grants they received on their tax return for the year 2020-2021. According to HMRC, over 2.7 million people claimed at least one Self-Employment Income Support Scheme (SEISS) payment up to 5 April 2021, and if you did indeed receive SEISS, this must be recorded.

Likewise, other Covid support measures that must be included in one’s Self Assessment are:

• The Coronavirus Job Retention Scheme (otherwise known as the furlough scheme)
• Self-isolation payments
• Local authority grants
• Eat Out to Help Out scheme

That said, it’s also important to note that if you received a £500 one-off payment as a working household receiving Tax Credits, this does not need to be reported in your Self Assessment.

Self-serve Time to Pay

For many, the last couple of years has been a struggle financially. In 2020, according to a study by LSE, over a third (34%) of self-employed workers struggled to pay for basic expenses such as rent and mortgage payments. So, if you’re feeling the pinch this year, you’re not alone. That said, for those feeling anxious and overwhelmed at their tax bill this year, there is help out there if you’re worried you can’t pay your tax bill in full. You can now spread your tax bill over a period of time online via HMRC’s self serve Time to Pay system.

The Time to Pay system is available to eligible to Self Assessment taxpayers who:

• Don’t have other outstanding tax returns or any other tax debts
• Have debts between £32 and £30,000
• The plan made must be set up no later than 60 days after the tax payment’s due date (30 March 2021)

When setting up your payment plan online, you’ll need to be equipped with:

• Your unique Tax Reference number
• Your VAT registration number, if applicable
• Your Bank account details
• Details relating to any previous payments you’ve missed

When arranging your payment plan, HMRC will ask you some questions about your financial circumstances to gauge what will be affordable for you. Questions may include how much you’re earning, what an affordable payment scheme would look like for you, what your outgoings are, whether you have any savings or investments.

What to watch out for

HMRC has issued a warning around ​​copycat websites and phishing scams ahead of the Self Assessment deadline. As the deadline approaches, scammers are more likely to target taxpayers who are in a rush to submit their tax returns and have their guard down. According to HMRC, 800,000 tax-related scams have been reported in the last 12 months alone.

Myrtle Lloyd, HMRC’s Director General for Customer Services, has subsequently published advice on what to look out for if you think you might be being approached by a potential fraudster. Lloyd says to be wary of anyone who contacts you claiming to be from HMRC and rushes you. Likewise, anyone “threatening arrest” will not be calling from HMRC. Lloyd outlined: “If you are in any doubt whether the email, phone call or text is genuine, you can check the ‘HMRC scams’ advice on GOV.UK and find out how to report them to us.”

Tags: coronavirus, Employed and Self Employed, Self Assessment, self employed, The Salary Calculator

All you need to know about UTR numbers

by Madaline Dunn

[Sponsored Post]

Self Assessment: It’s coming around to that time of year again. While some may have already completed and sent off their annual tax return, there are also many who have not! In 2020, 700,000 taxpayers waited until the last day to file their return, and a staggering 26,562 taxpayers left it to the last hour.

So, if you haven’t filed your tax return yet, and perhaps are doing so for the first time, you may have a few questions, including; what on earth is a UTR number?

Don’t worry; there’s still plenty of time to file your tax return before 31st January and make sure you’re not faced with late payment fines. At The Salary Calculator, in this article, we’ll get you to speed and explain:

• What a UTR number is
• When you need a UTR number
• How to register for a UTR number if you don’t have one
• What will happen after registering for a UTR number
• Where you can find your UTR number

What is a UTR number?

UTR stands for Unique Taxpayer Reference, and this is a 10-digit number that is unique for each person or business. Just as with a National Insurance (NI) number, once you have one, you have it for life. So, even if you’ve been out of business for a while, you’ll never lose your UTR number, your number will just become dormant.

A UTR number is issued by HMRC and sometimes includes the letter K at the end of it.

When do you need to provide a UTR number?

A UTR number is required if you:

• Need to create an online account with HMRC
• Are self-employed or have a limited company
• Owe tax on savings, capital gains, and dividends
• Must register individual taxes
• Work within the Construction Industry Scheme (CIS)

How do you register for a UTR number?

If you don’t already have a UTR number and need one, the most simple and fastest way to get one is to apply online on HMRC’s website.

Of course, not everyone’s preferred method involves a computer or laptop, so rest assured, you can also apply to get your UTR number via letter too. That said, this way is, unfortunately, much slower and will involve postage fees as well.

When it comes to registering for a UTR number, this must be done within the first three months of opening your business, regardless of your occupation.

In order to register, you must also submit a few different pieces of information. This information includes:

• Your name, DOB and address
• Your contact information (preferred number and email address)
• Your NI number
• When you commenced self-employment
• The type of business you have
• Basic business information (address, number, name)

What happens after registering for a UTR number?

Once you’ve applied for your UTR number, there are a few things to bear in mind. First of all, it can take up to ten days for your UTR number to arrive, sometimes longer.

In addition to this, once you’ve heard back from HMRC and received your activation code, don’t wait around too long before using it, as it expires at 28 days.

Where can you find your UTR number?

Your UTR number can be found in a number of places, including:

• Statements of accounts
• Your Self Assessment Tax Return
• HMRC payment reminders
• HMRC Self Assessment notices

If you think you’ve either misplaced or lost your UTR number, don’t panic. Contacting HMRC is your best bet. When reaching out to HMRC, you should have your NI number to hand, as you will be asked for it when you call.

HMRC can be contacted via:

• 0300 200 3310 (UK)
• +44 161 931 9070 (Outside UK)
• 0300 200 3319 (Textphone)

Final thoughts

Navigating the world of tax returns can be anxiety-inducing for some; that said, there are several sites out there that can lend a helping hand. HMRC are always available if you need guidance on your tax return and can answer any burning questions.

Go Simple Tax also helps to make things simple and straightforward. The software provides guidance, as well as hints and tips on how to save money.

Tags: Economy, Employed and Self Employed, Self Assessment, self employed, The Salary Calculator, UTR number