Payroll professionals are advised to look out for the progress of the National Insurance Contributions (Secondary Class 1 Contributions) Bill en route to Royal Assent.
This will do three things for tax year 2025/26, all announced at the October 2024 UK Budget:
1. Increase the rate of Secondary (employer) National Insurance Contributions (NICs) from 13.8% to 15%
2. Reduce the Secondary Threshold (ST) from £9,500 to £5,000 per year (and the equivalents for payrolls that are not annual, e.g. weekly, monthly)
3. Increase the value of the Employment Allowance from £5,000 to £10,500
You are well-advised to see the Explanatory Notes to the Bill and HMRC’s Policy Paper of 13 November 2024, as both contain other knock-on administrative implications:
The NICs Percentage Increase
This is a simple increase that applies to earnings that are above the ST. There are no knock-on implications.
Reducing the Secondary Threshold
Whilst this means the higher NICs percentage applies to more earnings; the knock-on consequence is that employers will now need to submit RTI returns if any of their employees earn above the ST. Previously, this was a requirement only if earnings were above the Lower Earnings Limit (LEL).
As the HMRC Policy Paper explains, the knock-on effect of this legislative change is that small businesses may be adversely affected, as the requirement to submit the Full Payment Submission (FPS) now applies where earnings are above the Secondary Threshold. Potentially, therefore, more people are covered.
Increasing the Value of the Employment Allowance
It is important to claim the Employment Allowance and the increase in value makes this more important in 2025/26. PLUS, the eligibility restriction placed on employers with secondary Class 1 NICs liabilities over £100,000 in the tax year immediately prior to the claim has been removed. So, more employers will be entitled to claim the higher value.
Importantly, the 2024 Bill also removes the State Aid restrictions. So, simply, when claiming the Employment Allowance, these do not apply and the application via software should indicate this.
For Bookkeepers
It’s the knock-on impacts of the simple changes that are worth noting. ICB strongly recommend you talk to your software developer about:
- The requirement to submit via the FPS people earning at the Secondary Threshold
- The procedure they have in place for claiming the Employment Allowance for tax year 2025/26. Software does not need to restrict the application because of any State Aid (which no longer exists anyway). Therefore, there is no need to answer the State Aid sector questions, as these are not relevant (nor are the deminimis values published in guidance). However, software developers have not been told by HMRC to remove these fields from their software products!
As well as talking to your software developer, ICB also recommends talking to your clients. Bookkeepers will often ask their clients to confirm their business sector and refer to State Aid deminimis values, however, the 2024 Bill means that neither are required.
