Update from Azets. Autumn Budget: A looming cost of business crisis?

This places further financial pressure on businesses at a time when National Living Wage increases are coming into effect and corporation tax is jumping up considerably, with many industry sector-specific companies facing their own unique economic headwinds. It is possible the UK is switching from a cost of living crisis to a cost of business crisis.

NIC increases

Employers’ National Insurance contributions (NICs) are to increase by 1.2% to 15% from April 2025. Whilst this increase was not as high as the rumoured 2%, it was accompanied by a reduction in the Secondary Threshold at which employer NICs become payable from £9,100 to £5,000 per year; this reduction in the secondary threshold alone will cost employers an additional £615 per employee.

The Employment Allowance will also be increased from £5,000 to £10,500, and the cap that only permitted businesses with an Employer NIC liability of £100,000 or less will also be removed. This allowance increase will shield some of the smallest employers from the NIC increases. The table below provides an overview of the additional employer NIC at different salary levels:

Employee Salary	Additional cost from Secondary Threshold reduction	Additional cost from rate increase of 1.2%	Additional Employer NICs payable	Percentage Increase in Er NICs
£20,000.00	£615.00	£130.80	£745.80	50%
£40,000.00	£615.00	£370.80	£985.80	23%
£60,000.00	£615.00	£610.80	£1,225.80	17%
£80,000.00	£615.00	£850.80	£1,465.80	15%
£100,000.00	£615.00	£1,090.80	£1,705.80	14%
£120,000.00	£615.00	£1,330.80	£1,945.80	13%
£140,000.00	£615.00	£1,570.80	£2,185.80	12%
£160,000.00	£615.00	£1,810.80	£2,425.80	12%

National Minimum/Living Wage increase

Additionally, the National Living Wage (applies to workers aged 21 and over) will be increased to £12.21 from April 2025. Currently, the rate is set at £11.44, meaning a 6.7% increase to contend with for many businesses. This jump was based on recommendations from the Low Pay Commission (LPC) to account for cost of living and also expected inflation up to March 2026. Also, the minimum wage rate for workers aged 18 to 20 is to increase to £10 (16.3% increase) and the apprenticeship rate will be £7.55 (18% increase).

Worth noting, however, is that the main NLW rate increase is in reality more than 10% (not the headline 6.7%) after the NIC increases above have also been factored in.

The business impact

Businesses have been contending with heightened cost pressures over recent years and these announcements from the Budget will further impact their balance sheets. Below we have calculated some projected additional costs businesses could be facing – using an average salary of £30,000 and other assumptions:

Total wage bill	No. of employees	Employer NIC 2024	Employer NIC 2025	Increase in NIC cost	% increase
£300k	10	£23,842	£27,000	£3,158	13.25%
£600k	20	£52,684	£64,500	£11,816	22.43%
£900k	30	£81,256	£112,500	£20,474	25.11%
£1.5m	50	£144,210	£177,000	£32,790	22.74%
£3m	100	£288,420	£364,500	£76,080	26.38%

Mitigating the impact using salary sacrifice schemes

Businesses looking at ways to manage increased costs, particularly where the increase is hitting during their current financial year, may need to reconsider recruitment plans, or scrap/dilute pay increases. However, a key area to consider could be through salary sacrifice, including Pension Salary Exchange (PSE), which we estimate could cut the overall cost impact by between 20-41%.

Essentially, PSE changes the way employee pension contributions are made in a way that produces NIC savings for both employer and employee, creating a rare ‘win-win’ situation of:

• Enhanced employee reward – increased net pay or more into their pension

• Savings for the business – which can be retained and/or reinvested in staff, or now used to mitigate the NIC increase costs

The following table shows how the use of PSE can offset some of the increase costs from the NIC changes:

Annual salary	NIC impact	PSE savings	Net impact	NIC costs mitigated %
£20k	£746	£150	£596	20%
£40k	£986	£300	£686	30%
£60k	£1,226	£450	£776	37%
£80k	£1,466	£600	£866	41%

The sooner PSE can be introduced, the sooner the savings can begin to mitigate the impact of the NIC increase. However, salary sacrifice is only an option where the wage after implementation doesn’t fall below National Minimum/Living Wage levels. For example, businesses in hospitality sector are likely to face this issue, and therefore rules out this option, but other avenues could be considered instead.

We are here to help

We are here to talk through mitigating the impact and guide you through any challenges. We can support with:

• Performing a cost impact analysis of the NIC changes for employers
• Reviewing your current business model and cost structure
• Providing forecasts for you and your funders to show the impact on the increased costs
• Providing projected savings and assist with the implementation of PSE and other salary sacrifice arrangements
• Undertaking an Employer Healthcheck to identify tax/cost and time/efficiency savings, ensuring tax reporting obligations are being met and improving tax exemption utilisation

If you are concerned about how your business is going to manage these changes or have any questions on how to plan for their implementation, please get in touch with Lyn Newbury, lyn.newbury@azets.co.uk, 01233 629255.