In Short
- The 2024 Labour Budget introduces significant tax and employment law changes, impacting employer costs and employee wages.
- Employer national insurance contributions will increase, and the national minimum wage will rise from April 2025.
- New measures target tax avoidance by umbrella companies, affecting payroll responsibilities.
Tips for Businesses
Prepare for increased costs due to higher employer national insurance contributions and the national minimum wage rise in April 2025. Review your payroll practices to comply with the new rules targeting umbrella companies. Staying proactive can ensure you remain compliant and manage costs effectively in light of these changes.
For the first time in over 14 years, Labour has outlined their economic plans in this year's Budget. As the political landscape evolves, you may be wondering how the UK's new economic proposals will impact your business operations. This article will explore the key changes that are set to take place during the current Parliament and how they could affect you and your business.
What Does the Budget Mean for Employers?
Each year, the Chancellor of the Exchequer apportions the budget and decides how the UK's finances will be spent. Starting from the upcoming tax year, the government has announced sweeping proposals to increase its tax revenue by £40 billion. Specifically, over half of this will be generated by the proposed changes to employer national insurance.
As the government decides its approach to taxation, costs and any proposed spending, you must be prepared to reconsider how the budget will impact your:
- operating costs;
- day-to-day spending; and
- recruiting.
Before the budget, the government also revealed its new Workers' Rights Bill, focusing on overhauling the employment landscape.
Increase in Employer National Insurance Contributions
From April 2025, the amount of employer national insurance you will be required to pay will increase from 13.8% to 15%. This increase is set to cost employers around £900 more per employee, according to the IFS.
In addition, the lower earnings threshold is set to decrease, meaning that the earnings level at which you start paying insurance will be reduced from the current rate of £9,100 to £5,000.
The government has also increased the Employment Allowance from £5,000 to £10,000 and removed the £100,000 Employment Allowance eligibility threshold to apply to all eligible employers. This means eligible employers will only begin paying employer national insurance when their bill surpasses £10,500.
Increased National Minimum Wage
Perhaps the most important announcement in the Budget is the annual increase in the national minimum wage, which is set to increase in April 2025. This comes as the government accepts the Low Pay Commission recommendations.
This increase reaffirms the government's intentions to eventually move towards a single adult minimum wage rate. The increases compared to this year's rate can be seen below.
| April 2024 (Current) | April 2025 (Incoming) | |
| 21 + (National Living Wage) | £11.44 | £12.21 |
| 18 – 20 | £8.60 | £10.00 |
| Under 18 | £6.40 | £7.55 |
| Apprentice | £6.40 | £7.55 |
The increase to the national minimum wage announced in the budget is the largest in history and will be effective in April 2025.
Increasing Carers' Allowance
Similar to the increase in the national minimum wage, the increase in Carers' Allowance is also set to be the biggest in its history.
Carers' Allowance is currently a benefit that individuals could be entitled to if they provide care to someone for at least 35 hours a week. The budget announcement will raise the earnings limit to match 16 work hours at the national living wage. This adjustment coincides with the national living wage increase from £11.44 to £12.21 per hour. This will come into effect in April 2025.
Under the new changes, working carers will be able to earn up to £196 weekly while still qualifying for Carers' Allowance. This marks a considerable increase of approximately £45 per week compared to the previous earnings limit of £151 per week. As a result of this change, it is estimated that 60,000 carers are expected to become eligible for Carers' Allowance.
| April 2024 (Current) | April 2025 (Incoming) | |
| Carers' Allowance earnings limit | £151 per week | £196 per week |
Targeting Tax Avoidance by Umbrella Companies
Starting April 2026, the government is introducing new measures to address concerns in the umbrella company sector. These changes aim to ensure fairer practices and greater accountability.
Under the proposed legislation, the responsibility for managing pay as you earn (PAYE) will shift from umbrella companies to the recruitment agencies that place workers with end clients. In cases where no recruitment agency is involved, this duty will fall directly to the end client.
This represents a significant change in how payroll responsibilities are handled. The government is looking to provide clarity and allow for proper preparation in the Finance Bill 2024-25, which is currently being discussed in Parliament.
Key Takeaways
As an employer, you must familiarise yourself with the changes created through the new budget and how they will affect your business.
- The national minimum wage is due to increase considerably from April 2025. You must ensure that your staff salaries do not fall below the national minimum wage.
- You are required to pay national insurance on salaries from £5,000, down from £9,100.
- Carers' Allowance is set to increase, estimated to increase the threshold by £45 per week for carers. This will provide 60,000 additional carers with support.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
