We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA
Keep on top of changes to the employee allowance, national insurance and the national minimum wage
From 6 April 2025, the rate of employer national insurance contributions (NICs) for Classes 1, 1A and 1B will rise by 1.2 percentage points to 15%.
Additionally, the threshold at which employers start to pay NICs will decrease from £9,100 to £5,000 per year. To support small businesses amid these changes, the government will increase the employment allowance from £5,000 to £10,500 and remove the previous £100,000 threshold, making it available to all eligible employers.
The employment allowance allows employers to offset their secondary (employer’s) class 1 NICs liabilities for the tax year, but it cannot be applied to class 1A or class 1B NICs. Employers can claim the employment allowance at any time during the tax year, which will then reduce the amount of secondary class 1 NICs owed to HMRC each payroll run, until the allowance is fully claimed or the tax year ends.
This allowance applies to the employer as a whole, not per employee, so it caps the reduction of secondary class 1 NICs liabilities to the annual allowance amount, regardless of the number of employees.
Employers can backdate their claim for the employment allowance for up to four previous tax years. In a group of connected companies, only one company can make the claim, and they can choose which one will do so.
The impact of these changes are explained through this example.
For businesses in Northern Ireland, the employment allowance is considered a form of ‘de minimis state aid’ and counts towards the EU state aid threshold relevant to the employer’s sector. It cannot be claimed if the sector’s threshold has already been exceeded.
Certain employers and liabilities are excluded from the employment allowance:
- companies where the director is the only person earning above the NIC secondary threshold
- public authorities
- liabilities for employees engaged in personal, family or household affairs (like housekeepers or gardeners), unless due to age, illness or disability
- liabilities from contracts covered by the intermediaries (IR35) legislation
- liabilities arising from a business transferred from another employer in that year.
National Minimum Wage (NMW) increase
The government has laid legislation confirming the new National Minimum Wage (NMW) and National Living Wage (NLW) rates that will take effect from 1 April 2025. The changes mean that from April 2025, the NLW, payable to those aged 21 and over, will rise from £11.44 per hour to £12.21 per hour, an increase of 6.7%. The NMW for 18–20-year-olds will rise from £8.60 to £10 per hour. Workers under the age of 21 must be paid the National Minimum Wage (NMW) appropriate to their age as per below table:
| 21 and over | 18 to 20 | Under 18 | Apprentice | ||
| April 2024 (current rate) | £11.44 | £8.60 | £6.40 | £6.40 | |
| April 2025 | £12.21 | £10.00 | £7.55 | £7.55 |
Apprentices
Apprentices are entitled to the apprentice rate if they’re either:
- aged under 19
- aged 19 or over and in the first year of their apprenticeship.
The NMW applies to most workers over the age of 16. It does not apply to the self-employed. Employers are obliged to keep records that are sufficient for NMW and NLW purposes. Employers can be fined up to £20,000 for non-compliance.
The Employment Rights Bill 2024-25
Last but certainly not least, the Employment Rights Bill proposes extensive changes to employment rights. The bill covers reforms to many areas of employment law, including unfair dismissal, flexible working, statutory sick pay, family leave, protections against harassment, fire and rehire, collective bargaining in the education and adult social care sectors, trade union law and enforcement of labour market rules. Some of the key reforms include:
- the end of exploitative zero-hour contracts
- removing the two-year qualifying period for unfair dismissal protection
- day one rights for paternity, parental and bereavement leave
- the restriction of ‘fire and rehire’ practices
- amendments to flexible working law
- amendments to statutory sick pay eligibility requirements
- a revision of employer’s duty to prevent sexual harassment and third-party harassment in the workplace
- the extension of time limits for bringing employment tribunal claims from three months to six months.
As explained within the policy papers most of the changes proposed are not expected to come into effect until 2026. However, the government has begun the process of carrying out consultations on several of these. While no specific dates have been confirmed, it’s important for employers and businesses to ‘watch this space’ and submit their views where possible.