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"National Insurance rate increase and a sharp drop in the contribution threshold will cost us over £100,000 annually"

ended 30. October 2024

The Chancellor today announced that employers' NI  will increase by 1.2% to 15%. In addition, the current threshold of £9,100 will reduce to £5,000 from April next year, a decision Reeves said was “a difficult choice”.

Alex Cross, Finance Director at the independent coffee chain, BEAR, said: “The combination of a National Insurance rate increase and a sharp drop in the contribution threshold will cost BEAR over £100,000 annually. While both changes are impactful, it’s the reduction of the threshold from £9,100 to £5,000 that’s hitting hardest. Measures like these place added pressure on small businesses already navigating rising costs and wage demands, making it harder to grow and create jobs. This may also push inflation up, as these costs inevitably impact businesses, their supply chains and ultimately consumer pricing. For many of us in the SME sector, this creates significant challenges in an already complex economic environment.”

Meanwhile, Kevin Drew, Managing Director at Ascentant Accountancy, said it would change the way directors pay themselves: “A large number of businesses with only a director on payroll pay themselves just below the secondary NI threshold to avoid paying tax and NI on their main payroll earnings, topping up their salary with dividends from profits. This will likely see directors change the way that they remunerate themselves by way of a full salary, given that the threshold has dropped to £5k and there were no major changes announced in relation to dividend income. The Employment Allowance being increased from £5,000 to £10,500 will be welcomed by SMEs, but dropping the threshold at which businesses pay Employer National Insurance along with an increase in the Minumum Wage and phased introduction of a universal Minumum Wage will erode this.”

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12 responses from the Newspage community

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Alex Cross
FD at BEAR
The combination of a National Insurance rate increase and a sharp drop in the contribution threshold will cost BEAR over £100,000 annually. While both changes are impactful, it’s the reduction of the threshold from £9,100 to £5,000 that’s hitting hardest. Measures like these place added pressure on small businesses already navigating rising costs and wage demands, making it harder to grow and create jobs. This may also push inflation up, as these costs inevitably impact businesses, their supply chains and ultimately consumer pricing. For many of us in the SME sector, this creates significant challenges in an already complex economic environment.
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Kevin Drew
Managing Director at Ascentant Accountancy
A large number of businesses with only a director on payroll pay themselves just below the secondary NI threshold to avoid paying tax and NI on their main payroll earnings, topping up their salary with dividends from profits. This will likely see directors change the way that they remunerate themselves by way of a full salary, given that the threshold has dropped to £5k and there were no major changes announced in relation to dividend income. The Employment Allowance being increased from £5,000 to £10,500 will be welcomed by SMEs, but dropping the threshold at which Businesses pay Employer National Insurance along with an increase in the Minumum Wage and phased introduction of a universal Minumum Wage will erode this. Currently the Employment Allowance is only available to employers with an NI bill of £100,000 or less. This is also being removed, allowing more employers to benefit from it. The Government estimates that 865,000 SMEs will be exempt from paying Employer NI.
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Dariusz Karpowicz
Director at Albion Financial Advice
Ah, the taxman cometh - but with a twist! While the rise in employer National Insurance Contributions stings, the Chancellor's move to raise the threshold at which businesses start paying it offers a ray of hope, particularly for the little guys.
This shrewd manoeuvre should help shield smaller enterprises from the full brunt of the increase, allowing them to redirect precious resources into growth and innovation rather than shelling out to the Exchequer. Of course, the larger firms may feel the pinch a bit more, but perhaps that's the price they must pay to level the playing field.
Overall, it's a delicate balancing act - protecting the little guy whilst still extracting the £25bn needed to fund the government's ambitious agenda. Ingenious, really. I imagine investors may pause and ponder the landscape, but with smaller businesses better insulated, the UK's entrepreneurial spirit may just weather this storm.
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Matthew Knight
Independent Strategist and Freelancing Advocate at Freelancing.Support
Dropping the threshold at which businesses need to pay the contributions is a shock. This will mean more micro-businesses will be affected, rather than it being a tax on larger businesses with higher turnovers. Employer NI contributions affect many freelancers who work as limited companies, who pay both employee NI contributions AND employer NI, even if they're just one person. An unwelcome additional cost for microbusinesses in the UK, in what is already a very challenging economic time.
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Kate Underwood
Managing Director / HR Director at Kate Underwood HR and Training
Lowering the NIC threshold to £5,000 puts a squeeze on small business cash flow, hitting us where it hurts. With higher payroll costs, hiring and growth are on the line just when we need them most to drive recovery and keep contributing to the economy.
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Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
Caught between manifesto promises and fiscal realities, Chancellor Reeves has opted to squeeze employers with an NI gambit that bets on the resilience and adaptability of UK businesses. After an endless stream of leaks and policy speculation, the headline increase to 15% was overshadowed by the dramatic lowering of the threshold at which companies start paying these contributions. Yet this comes at a time when underlying business confidence is deteriorating rapidly. Consequently, this policy represents a significant additional challenge for businesses, particularly in labour-intensive sectors, with the long-term impact on growth uncertain. Furthermore, despite trying to avoid impacting so-called ‘working people’, this targeting of employers could stifle job creation in a period where growth is imperative for continuing the UK’s economic recovery. Only time will tell if this bold move will be remembered as a fiscal masterstroke or a costly misstep in Labour's economic strategy.
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Mary Maguire
Managing Director at Astute Recruitment Ltd
Rachel Reeves said it herself - the Employer's NI tax rises will contribute £25bn. Thanks then to the so-called 'party of growth'. How on earth does leeching £25bn from the SME business community create growth? Businesses were already reigning back on new recruitment. This is not a budget for growth. It's a Halloween horror show which will cause nightares for many, many business owners and charities across the UK. The lower threshold won't help all the SMEs who employ part-time workers either. As for the hospitality sector? They must feel like drowning their sorrows in a 1p cheaper pint!
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Any employer with more than four full time staff is going to feel the financial pressures of this, and with margins for many already squeezed prices will increase leading to an uptick in inflation. This will no doubt lead to less jobs being created.
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Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
Lifting employers' National Insurance Contributions (NIC) is one thing, but dropping the threshold to £5,000 feels like asking businesses to dig deep into pockets already riddled with holes. For small businesses, it’s like adding weights to a swimmer while telling them, “just keep paddling.” Every employee now crosses this threshold much earlier, meaning NIC payments will eat into budgets we’re already juggling to cover rising wages, rent, and utilities. We want to invest in growth and more staff, but these tax hikes risk turning our focus to mere survival. It’s hard not to feel as if we're funding a budget shortfall at the expense of creating more jobs and boosting the local economy. If the aim is to help Britain thrive, perhaps the government could consider easing up the pressure rather than clamping down on those of us trying to make it work from the ground up. What does this govenrment want breadwinners (never mind the term 'working people') to do for their families and staff?
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Daniel Wiltshire
Actuary & IFA at Wiltshire Wealth
The increases to employer NI will weigh heavily on small firms. A higher Employment Allowance will protect micro businesses, but an unintended consequence could be that firms decide to stay small or delay growth. This could stifle entrepreneurialism at a time when the country badly needs it.
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Patricia McGirr
Founder at Repossession Rescue Network
This National Insurance nightmare is a tax bombshell that will hit employers hard. Hiking employers' National Insurance to a painful 15% while slashing the threshold to £5,000 risks bleeding small businesses dry and squeezing every corner of the workforce. These measures are not just a tax rise, they’re a ticking time bomb for job security, innovation and business growth in the UK. Employers are already struggling under high operational costs, inflation, and economic uncertainty, and this added burden threatens to be the tipping point for countless businesses. Increasing NI contributions whilst reducing the threshold leaves employers, employees and the economy vulnerable. If we want to build a resilient business landscape, penalising those creating jobs and opportunities is a counterproductive move.
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Rebecca Seeley Harris
CEO at Re Legal Consulting
The rise in the Employers' NICs will have a direct impact on those who work in the off-payroll sector. Whether they are an umbrella company worker, an inside IR35 contractor or indeed a director of a personal service company. All will be affected by not only the rate rise but, the lowering of the threshold.

The government promised not to tax workers but, these people are all workers.