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How will the budget affect your payroll bill from April?

All very much doom and gloom coming out of the Autumn budget for employers up and down the country, with hikes to National Minimum Wage (NMW), AND the “on costs” of employment – specifically, Employer’s National Insurance (ER NIC) – shooting up in April 2025.

But, are we ALL losers? No – some businesses might actually be BETTER OFF😮

As ever with taxes, the answer is… “It Depends”.

Rather than bore you with a recap of the changes in rates/allowances/etc and make you do your own maths, let’s look at three difference (real, but anonymised) clients, to show you how different businesses will be affected.

Mr & Mrs Business Owner

 

A popular type of business here – a small Limited Company, where the husband and wife work together in the business, but with no external staff, paying themselves a small, tax-free salary of £12,500 each.

Before the budget, their company’s Employer’s NIC charge would have been around £940 per year BUT that’s before the Employment Allowance, which for tax year 24/25 is £5,000 per year. 

For tax year 25/26, their ER NIC charge will jump to £2,250 – more than double! – but this will still be covered by the Employment Allowance, which will rise to £10,500 for 25/26.

As they are directors of their own Limited Company, the changes to NMW don’t apply.

So, in short – NO CHANGE.

A Cafe in Taunton

 

Hospitality is an area which is going to be hit REALLY hard by the budget changes, and I think we are going to see a lot of businesses lay off staff or throw in the towel completely, if they can’t pass these costs on to customers.

My client Sarah runs two cafes in Taunton, employing 10 part-time staff who tend to work around 20-25 hours a week. Most staff are paid NMW.

Sarah’s wage bill for an average month is around £11,400, or £137,000 for the year, before ER NIC.

Her ER NIC charge is £6,300, which is over the £5,000 allowance, leaving just £1,300 extra to find, bringing the total “cost of employment” to around £138,000

(For the eagle-eyed among you, I have for the purposes of this blog ignored the pensions costs which will also have an effect on most employers)

But from April 2025…!

1) The new NMW kicks in, adding £9,200 to the costs of employment and

2) Even with the jump in Employment Allowance, Sarah will need to pay an additional £2,600 of ER NIC to the taxman. 

So an increase of around 8.5%. Or, around £12,000 wiped off the bottom line of a business in an industry which is struggling to keep its head above water at the best of times.

That £12,000 is approximately the cost of employing one member of staff…I wonder if we will see redundancies, or a significant decline in new posts being advertised in the market?

A local accountancy firm

 

Mentioning no names, but let’s assume you run an accountancy firm – or any other people-focused service provider – employing around 20 staff in Taunton.

Generally staff are paid above NMW, with average wages in the profession of c. £40Kpa.

In 24/25, the ER NIC charge for your team is going to be c. £80,000, on a wage bill of about £800,000.

From 25/26, that’s going to be £94,500 – an extra £14,000, on the same wages cost – and none of that cost ending up with your staff.

Why are lower paid roles hit hardest?


Tax rises are what they are and it seems there’s not much businesses can do to avoid them, apart from reducing headcount (or a few other things – call me to discuss).

But what I find perverse about the new taxes are how they affect the cost of employing people at the lower income end.

The hikes in NMW will of course end up straight in the pockets of the (by definition) lowest paid, so whilst they are still very much a “cost” to businesses, it’s the staff who feel the benefit.

But the hikes in ER NIC throw out some interesting results:

In the accountancy firm above, their Employer’s NIC bill is going to rise, in percentage terms, by just 17%. Pretty chunky, no? But they got off lightly…:

For Sarah’s cafe, their ER NIC bill is going to jump by…nearly THREE TIMES what it was in 24/25!!

Sure, the ££ numbers are smaller, but for a much smaller business making – let’s not be coy about it – less profit per employee than the accountancy firm.

I wish I could tell you what Rachel Reeves was thinking when she announced these changes – why bring out tax changes that affect those businesses employing the least well-off, so much more than sectors with higher wages?

What should I do NOw?

Firstly, speak to your accountant!!

Get them to run the numbers on your own business, to see what 25/26 is going to cost you. 

And then, once you know the size of the problem, you can work with them to determine how to tackle it.

If you don’t have an accountant – or they’re just hopeless, and this blog is the first time you’re realised there’s costs coming your way from April 25 – then use the Contact button to get in touch and let’s see what we can do for you ↘️

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