National Insurance (NI) changes following the Autumn Budget 2024

Autumn Budget 2024

During the Autumn Budget, The Chancellor announced the rate of employers’ national insurance contributions (NIC) that businesses pay will increase by 1.2%, from 13.8% to 15%, from April 2025. The earnings threshold when employers start paying NIC will also be lowered from £9,100 per year to £5,000 (fixed until April 2028).

The Chancellor stated during the Autumn Budget that these changes should raise £25 billion per year.

Businesses will likely look to mitigate this increase in cost.  This might include deferring pay rises or recruitment, looking at engaging individuals as contractors vs employees, or considering alternative remuneration structures.  Owner managed businesses have more flexibility over profit extraction, and owner-directors will want to revisit their current split of salary vs dividends ahead of the new tax year.

The higher rate of NIC and lower threshold will clearly have a more sizable impact on larger companies. For example, the employer’s NIC cost of employing an individual on a £50k salary will increase from £5,644 to £6,750.  Across a workforce of several thousand, that clearly adds up to a large (albeit tax deductible) number.  Whilst the increase in employment allowance from £5,000 to £10,500 from April 2025 is welcome, it is likely to benefit only the smallest employers.

From an employee’s perspective, employees’ NIC and income tax on salaries is unaffected, upholding Labour’s promise that the burden of taxation should not fall on “ordinary working people”, although arguably, employees may still experience repercussions if businesses are forced to examine their headcount in light of the announced changes.

[Article updated 30 October 2024.]

It is important to ensure that your employees’ NI categories are up to date. The NI category determines how much NI the employee and employer need to contribute to each payroll.

NI categories

A – Employees that are aged 21 to state pension age, and aren’t in B, C, H, J, M, V, X and Z or working in a Freeport.

B – Married women and widows entitled to pay reduced National Insurance. (This stopped in 1977, but if the employee opted in before this and has not stopped this at any point, they may still be able to pay the lower rate).

C – Employees over the State Pension Age.

H – Apprentices under 25.

J – Employees who can defer National Insurance because they’re already paying it in another job.

M – Employees under 21.

V – Employees who are working in their first job since leaving the armed forces (veterans).

X – Employees who do not have to pay NI, for example they’re under 16.

Z – Employees under 21 who can defer National Insurance because they’re already paying it in another job.

Freeport categories

These apply to employees who work a Freeport.

F – All employees working in a Freeport, apart from those in I, L or S.

I – Married women and widows who work in a Freeport and are entitled to pay reduced NI. (This stopped in 1977, but if the employee opted in before this they may still be able to pay the lower rate).

L – Employees who work in a Freeport and can defer National Insurance because they’re already paying it in another job.

S – Employees who work in a Freeport and are over the State Pension age.

The golden rules for NI categories 

If an incorrect NI category is selected, it can be difficult to correct the mistake at a later date. You may be charged a penalty for a mistake if you did not take ‘reasonable care’. To ensure you choose the right category we have outlined our ‘golden rules’ below.

• The NI letter is based on their information on the pay date.
• Ensure you have proof of age to make certain you are applying the correct category based on age.
• Ensure anyone wanting to defer their NI has applied to do this with HMRC and has a deferment letter confirming they are allowed to do so.
• Check each time you run the payroll that nothing has altered meaning an employee needs to have their NI category changed. Examples where you may need to change the NI category include, reaching SPA, turning 16 or 21, or becoming an apprentice.
• Check with employees from social security institutions in the EU, Iceland, Lichtenstein, Norway, or Switzerland whether the employee has a Portable Document A1 (PDA1) form that exempts them from paying NI in the UK during the period covered by the PDA1 form. It is important to keep a log of when the PDA1 form expires and ensure a new one is received or NI category is amended.
• For employees from a country outside of the EU, Iceland, Liechtenstein, Norway, and Switzerland where the UK has a social security agreement, a reciprocal agreement, a Double Contribution Conventions, or a certificate issued by another country which states they are subject to that country’s social security legislation, then the certificate would be accepted as proof that the employee does not need to pay NI for the period covered by that certificate. It is important to keep a log of when the certificate expires and ensure a new one is received or NI category is amended.
• Employees coming to work in the UK from any other country – the employer and these employees are exempt from paying UK NI contributions for the first 52 weeks of their employment here provided that:
  • they are not ordinarily resident in the UK
  • they normally work outside the UK for a foreign employer
  • they are sent to work in the UK for a time by that foreign employer
  • when in the UK they continue to work for that employer

If you would like support in further understanding what the changes NI contributions mean for your or support regarding NI categories, please contact a member of the team using the form below.