Starting 6 April 2025, UK businesses will face a significant National Insurance (NI) rate increase from 13.8% to 15% and a drop in the income threshold to £5,000. To help offset these costs, the Employment Allowance will increase from £5,000 to £10,500.
These changes are expected to raise payroll expenses, making it more challenging for businesses, especially small and medium-sized enterprises (SMEs), to hire new employees or provide wage increases. Chancellor Rachel Reeves stated the tax hike is necessary to fund essential public services and will generate over £25 billion annually.
In addition to the NI rise, businesses will have to adapt to increased minimum wage rates. The National Living Wage will rise to £12.21 per hour, and the National Minimum Wage for younger workers will increase to £10 per hour starting the same date.
Leading business groups have expressed concern that these tax hikes will exacerbate current challenges, limiting the capacity of companies to invest and expand. Roger Barker, from the Institute of Directors, described the Budget as a source of “short-term pain,” emphasising that whilst relief is offered to small firms through the increased Employment Allowance, the overall burden may hinder economic growth.
Whilst some view the changes as manageable, others anticipate an additional annual cost of up to £19,000 due to the NI hike. Higher business rates, changing from a 75% to a 40% discount for many businesses, will also contribute to the financial burden.
As the government implements these changes, business owners urge policymakers to reconsider the potential stifling effect on job creation and investments. Entrepreneurs worry that the challenges posed by increased employment costs, coupled with a lack of tax relief and rising operational expenses, may ultimately affect the UK’s economy and its aspirations for growth.
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Reviewed by:
Junaid Usman
Apart from being a partner at Legend Fusions, Junaid is an expert on Business Tax including business management advisory services which has proven in the growth of company. He is a promising advisor with an ideology; “Any business success depends on the level of objectivity it maintains.”