The cost of employment – Budget 2024

Changes announced in the budget to employer’s National Insurance contributions which come into effect on 6 April 2025 and the National Living Wage will make it more expensive for many businesses to employ staff. There is much speculation about what this means for the jobs market, so is there anything employers can do to mitigate these rises?

Just to remind ourselves of the changes:

• Employer’s NI is to be increased by 1.2percentage points from 13.8% to 15% and the per-employee threshold at which employer’s start to pay NI will be reduced from £9,100 per year to £5,000.
• To support small businesses, the government is increasing the Employment Allowance £10,500 next year and the current £100,000 eligibility threshold will be removed benefiting all businesses.
• National Minimum Wage will rise to £12.21 per hour for staff aged 21 or over from April 2025 and £10 per hour for staff aged 18-20.
• From April 2026 and in phases, the use of payroll software to report and pay tax on benefits in kind will become mandatory and will apply to income tax and Class 1A NIC.

Employers will need to carefully calculate the increased employment costs and revise budgeting and to make any changes needed to pricing ahead of April 2025. This may also lead to a review of their workforce needs and explore greater use of technology within the business to offset the impact of these changes.

Employers may be tempted to use freelance staff to cover specific roles and projects but care will be needed to ensure these are genuine contractors and will not be treated as employees by HMRC as this will be a costly mistake to make.

Employers may look more closely at benefit packages including a salary sacrifice scheme for pension contributions as this provides income tax relief t source for the employee contribution as well as a reduction in NICs payable by both the employer and employee.

Electric vehicles

If you offer broader benefits to employees, now may be a good time to investigate all the incentives available. The government is strengthening incentives to purchase EVs by widening the differentials in Vehicle Excise Duty First Year Rates between EVs and hybrids or internal combustion engine cars. The government is also maintaining EV incentives in relation to taxable benefits on company cars and is also extending 100% First Year Allowances for zero emission cars and EV charge points for a further year until 2026. For employers considering company car renewals this may be a key cost consideration.

Double cab pick-ups

Hidden in the budget paperwork was the news that a double cab pick-up with a payload of one tonne or more will be treated as a car (rather than a van) for taxable benefit in kind purposes for expenditure from 1 April 2025 for corporation tax and 5 April 2025 for income tax.  For a car with C02 emissions of over 170g, the taxable benefit is currently 37% and this will increase to 38% for 2028/29 and 39% for 2029/30. This is considerably more than the taxable benefit in kind for the use of a company van.

There is also a small window of opportunity for the old provisions to continue to apply where a contract is entered into prior to 1 or 6 April and the expenditure is incurred by 1 October 2025 as this falls within the transitional provisions proposed in the budget.

Balbor Sundar is a Partner at Mercer & Hole www.mercerhole.co.uk