How will the UK Governments Recent Changes to Employers NI Impact my Business?

Author: George Ian Hope BAcc(Hons), MSc(IT), FCCA, CGA, CPA
https://www.linkedin.com/in/gihope
Ian is a general practicing member of the Association of Chartered Certified Accountants with fellowship
status (FCCA). He is also a member of the Certified General Accountants Association of Canada (CGA),
and a member of Chartered Professional Accountants of Canada (CPA).

Who Is Impacted?

Whether the UK Government’s proposed changes to Employers’ National Insurance impact your business effectively depends on three combined factors:

• The structure of your business AND
• Whether or not you employ other staff AND
• The size of your business
  

Employer’s NI Impact on the Self-employed

Generally speaking if you operate on your own as a sole trader and you don’t employ any other staff, then these proposed changes will not directly impact your business!  This is because as a sole trader, you are considered to be “self-employed”. Self-employed individuals pay Class 4 National Insurance contributions, and they do NOT also pay Employers’ NI on the same money.  Which is good news!

So as a self-employed trader you will be subject to NI taxes as follows:

• 0% – Payable on profits up to £12,570, which the value of your personal allowance, for which you pay no tax.
• 6% – Payable on profits between £12,570 and £50,270 (called the upper earnings profit limit)
• 2% – Payable on profits over £50,270

Employer’s NI Impact on Limited Companies

However, if you trade via a limited company or indeed if you employ other staff then you may be impacted by these changes, depending on the size of your business.  And that is because c (as the name implies) impacts employers (who have staff), which can include you as a Director (as an employee) and also any other staff which you employ.

The Government separately taxes National Insurance on BOTH employees (called Employees National Insurance) and also the business who employs you (called Employers National Insurance).

The amount of NI payable by employees themselves is NOT going to be changing this year.  Employees will still be subject to NI taxes as follows:

• 0% – Payable on earnings up to £12,570 (personal allowance)
• 8% – Payable on earnings between £12,570 and £50,270. Note – This is 2% higher than if you were self-employed.
• 2% – Payable on profits over £50,270

In addition, the Government also charges tax on the business who employs you (on the same earnings), and they have announced that they are going to be increasing this tax this year!  Employers will now be subject to NI taxes as follows:

• 0% – Payable on earnings up to £5000. It used to be 0% on earnings up to £9100, which means you start paying tax much earlier!
• 15% – Payable on earnings over £5000. It used to be 13.8%

So that is quite a large increase in NI taxes which businesses will now have to pay!  Both because the limit at which you start paying NI tax has decreased by £4100, and also because you are paying an extra 1.2% in tax.

In order to offset this increase for smaller businesses the Government has thankfully also increased the Employment Allowance from £5000 to £10500.  This means that providing that your business employs at least two people (who earn enough to pay National Insurance), then you wont have to start paying Employers NI until the value of the NI tax you need to pay exceeds £10500.  Note, that as this limit applies to the tax itself and not earnings, that most small businesses will not have to pay Employers NI.

So, if you operate a smaller business with lower numbers of employees then you will also hopefully not be impacted by these changes.  But if you operate a slightly larger business that is subject to Employers NI tax then these changes will have a huge impact on your business!

What Are The Impacts?

Here’s how it might impact you in these instances:

• Increased Employment Costs: The immediate impact will be on your payroll costs. You will need to pay a higher amount in NI for each of your employees, which increases your overall salary expenses.
• Cash Flow: Higher NI contributions can affect your business’s cash flow. You may need to reassess your financial planning and budgeting to accommodate the increased expenses. This may mean reallocating funds from other areas of your business or finding efficiencies elsewhere to cover the additional costs.
• Pricing Strategy: Depending on the scale of the impact, you might need to consider adjusting your pricing to maintain your profit margins. This can be a delicate balance where pricing can significantly influence customer loyalty and market competitiveness.
• Hiring Decisions: Increased costs could also influence your decisions about hiring new employees. If the additional costs are substantial, you might decide to delay hiring or consider alternative staffing solutions like part-time positions or sub-contracts.
• Investment in Employee Benefits: If your business strategy includes offering competitive benefits to attract top talent, the increased NI costs might force you to rethink these offerings. It could become more expensive to provide certain benefits, and you may need to evaluate which benefits you can afford while still maintaining a competitive edge.
• Compliance and Administration: Any change in tax law requires updates to payroll systems and processes. You’ll need to ensure that your payroll software is updated to reflect the new rates and that your finance team is aware of these changes to comply correctly.
• Financial Planning: Long-term financial planning might also be affected, as higher operational costs could impact your business growth and expansion plans. It might be necessary to revise financial forecasts and growth strategies to account for the increased costs.

Can QAccounting Help Me?

Yes!  As an Online Accountancy and Tax accountant we understand that these rules along with taxation in general can be confusing.  We are here to help you every step of the way, whether you need to understand the rules in greater detail or need advice about next best steps.

Please give us call (0116 243 7868 ), email (at enquiries@qaccounting.com ), or contact us ONLINE to speak to a member of our Accounting team without delay!