Rising NICs in 2025: What small businesses should consider in preparation

The Autumn Budget 2024 brought in several changes that will impact small businesses. Among the most significant is the 1.2% rise in employer National Insurance contributions (NICs), coupled with a reduction in the secondary threshold from £9100 to £5000 on which the NIC is paid scheduled for April 2025. For businesses already contending with inflation, supply chain challenges, and rising wage costs, it’s crucial to understand and prepare for the effects of this increase.

1. Higher payroll costs for small businesses

With this change, businesses will pay an additional 1.2% on each employee’s salary over the NIC threshold, potentially increasing monthly payroll expenses. For small businesses operating with tight margins, such as those in hospitality, retail, and the service industry, these additional costs can have a real impact on cash flow and financial flexibility. Many small businesses may need to adjust their budgets, redirecting funds from growth or marketing to cover these increased contributions.

2. Impacts on hiring and workforce management

For small businesses, especially those with a large workforce in lower-wage roles, this increase may impact hiring plans. Some businesses may choose to slow down hiring, reduce overtime, or even reconsider full-time positions in favour of part-time roles or freelance arrangements. For sectors like retail and hospitality, where staffing needs fluctuate with seasonal demands, this could mean fewer roles available during peak times.

3. Wage and benefits considerations

Alongside the NIC increase, April 2025 also brings a rise in the National Living Wage to £12.21 per hour for employees over the age of 21. This dual increase means small businesses will face compounded wage-related costs, particularly affecting those who rely on minimum-wage employees. To maintain their workforce without excessive payroll increases, some businesses might turn to alternative employee benefits as a retention tool, allowing them to reduce reliance on wage increases alone.

 4. Sector-specific challenges for hospitality and retail

Retailers and hospitality businesses, which often employ many minimum-wage workers, are expected to feel the most significant strain. With payroll representing a large portion of these sectors’ operating expenses, increased NICs could prompt some businesses to adjust their pricing structures to manage these rising costs, potentially passing some of the expense onto consumers.

5. Budget adjustments and financial planning

Given the budget impacts, early planning will be crucial. For many small businesses, this means reassessing financial forecasts, reducing discretionary spending, and seeking efficiencies in other areas. Consulting with a financial advisor can provide valuable insights into managing these new costs within the broader tax and payroll frameworks, potentially identifying strategies to minimise the impact on cash flow.

6. Taking advantage of government support programs

The Autumn Budget also introduced grants for energy efficiency and sustainability improvements, which could offer some indirect relief. Small businesses may explore these grants to offset operational costs through sustainable upgrades. For example, improving energy efficiency could reduce overheads in the long term, helping to absorb increased NICs without significantly impacting profitability.

Navigating the NIC increase with JW Hinks

At J W Hinks, our team is here to guide you through these changes. We can help you review payroll and tax structures, identify potential cost-saving opportunities, and develop a proactive financial plan to adapt to the new employer NIC rate.