National Insurance Contributions by Employers – Law Budget Predictions
The forthcoming 2024 Autumn Budget is expected to bring changes to employer National Insurance Contributions (NICs). While the Labour government has pledged not to increase NIC rates for employees, there is growing speculation that employers may see an increase in their contribution rates. The current employer NIC rate is 13.8% on earnings above £9,100 and employers also pay Class 1A and 1B NI contributions on expenses and benefits they give to their employees, at a rate of 13.8%. This rate could be revised upward, potentially raising billions of pounds for public finances. For example, in 2023-24 employer NI contributions raised £109 billion, according to the Institute for Fiscal Studies. Employee contributions raised £60 billion. A 1% increase in NIC to 14.8% would bring in an extra £8.5billon.
An employment allowance is currently available to small employers to reduce their NIC bill, providing savings up to £5,000 for the tax year 2024/25. For employees, the starting rate of NI has been reduced twice in 2024, from 12% to 10% in January, and then from 10% to 8% after the Spring budget.
Employers should prepare for these potential changes by reviewing their payroll processes and considering the financial implications on their labour costs. It’s also important to assess how this change could affect recruitment and retention strategies in the coming financial year. Stay updated with the budget announcements on October 30, 2024, to ensure your business remains compliant.
Pension Taxation
Significant pension taxation reforms are also expected in the 2024 Autumn Budget. Discussions include reducing the tax-free lump sum from its current limit of £268,000 to £100,000. Additionally, Labour may introduce new taxes on private pension income, currently exempt from National Insurance Contributions (NICs), and impose inheritance tax on pension pots. Placing a NIC charge on employers’ pension contributions could net around £16 billion in revenue. Therefore, you can see why NICs are a prime target for increasing tax revenue, albeit there has been criticism that at a time of growing elderly poverty, such changes will only further intensify lower retirement standards, especially when there remains speculation that Labour might protect public sector pensions from paying NICs on employer pension contributions.
These changes could reduce the attractiveness of pensions as a retirement savings vehicle, prompting higher earners to reassess their contribution strategies before the Budget. If you’re planning significant pension withdrawals or contributions, it may be worth seeking professional advice to navigate these potential changes.
We do not yet know how the Law Budget will affect people, and we will know more on budget day, so stay tuned for more information.
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