Owner-managed businesses are facing significant cost increases due to the 2024 Autumn Budget. With Employer’s National Insurance increases and the National Minimum Wage, it's crucial to plan ahead. This comprehensive guide will help small businesses navigate these changes effectively.
Understanding the Changes Impacting Owner-Managed Businesses
The budget introduces two major changes:
Employer’s National Insurance Increase from 13.8% to 15.0%.
Rise in the National Minimum Wage by 6.7%.
These changes will take effect from April 2025, giving businesses limited time to adjust.
Employer’s National Insurance Increase: What You Need to Know
Rate Increase Explained
From April 2025, the Employer’s National Insurance contribution ("NIC") rate will rise to 15.0%. While a 1.2% increase might seem minor, it represents an 8.7% relative increase in NIC expenses.
Threshold Reduction Implications
The threshold at which employers start paying NICs will drop from £9,100 to £5,000. This 45% reduction means employers will pay NICs on a larger portion of each employee's salary.
National Minimum Wage Increase: Preparing for Higher Payroll Costs
Impact on Small Businesses
The National Living Wage for workers aged 23 and over will increase from £11.44 to £12.21 per hour. For owner-managed businesses employing minimum-wage workers, this means higher wage bills.
Forecasting Wage Expenses
For an employee working 35 hours per week:
2024 Annual Wage: £11.44 × 35 hours × 52 weeks = £20,821
2025 Annual Wage: £12.21 × 35 hours × 52 weeks = £22,222
That's an additional £1,401 per employee per year.
Planning Ahead: Strategies for Owner-Managed Businesses
Reassessing Payroll Budgets
Calculate Total Increased Costs: Factor in both wage increases and higher NICs.
Review Staffing Levels: Assess whether current staffing is sustainable under new costs.
Consider Scheduling Adjustments: Optimise employee hours without compromising service.
Adjusting Pricing Strategies
Modest Price Increases: Even a small increase can offset higher costs.
Value Addition: Enhance services to justify price changes to customers.
Exploring Tax Reliefs and Accounting Services
Employment Allowance Increase: From April 2025, the allowance doubles to £10,500, reducing NIC liabilities. This allowance has also been extended to larger employers, so make sure you claim it next year!
Speak to us: Professional advice can uncover additional savings and strategies.
Detailed Financial Forecasting: The Key to Stability
Effective forecasting helps owner-managed businesses anticipate challenges and make informed decisions.
Steps to Effective Forecasting
Map Out Expenses: Include wages, NICs, rent, utilities, and other overheads.
Project Revenue: Base this on historical data, future plans and market trends.
Scenario Planning: Prepare for best-case, worst-case, and most likely scenarios.
Illustrative Example: A Small Café in Bognor Regis
Let's examine how these changes affect a small business in practice.
Calculating Increased Costs
Employees: 10 staff members working 35 hours/week at minimum wage.
2024 Annual Wage Bill: £20,821 × 10 = £208,210
2025 Annual Wage Bill: £22,222 × 10 = £222,220
Additional Wages: £14,010
Utilising the Employment Allowance
2024 Employer NICs (before allowance): [(£20,821 - £9,100) × 13.8%] × 10 = £16,175
2024 Employer NICs (after £5,000 allowance): £16,175 - £5,000 = £11,175
2025 Employer NICs (before allowance): [(£22,222 - £5,000) × 15.0%] × 10 = £25,833
2025 Employer NICs (after £10,500 allowance): £25,833 - £10,500 = £15,333
Additional NICs: £15,333 - £11,175 = £4,158
Implementing Mitigation Strategies
Total Additional Costs: £14,010 (wages) + £4,158 (NICs) = £18,168
Price Adjustment: Increase prices to cover additional costs.
Per Transaction Increase: £18,168 ÷ 50,000 transactions (163 a day for 6 days a week x 51 weeks) = £0.36
Operational Efficiency: Reduce non-essential expenses and optimise staffing schedules.
How Giraffe Accountants in Bognor Regis Can Help Owner-Managed Businesses
At Giraffe Accountants, we specialise in supporting owner-managed businesses through:
Personalised Financial Planning: Tailored strategies to manage increased costs.
Accounting Services: Comprehensive solutions for accounting, payroll, tax and forecasting.
Local Expertise: As accountants in Bognor Regis, we understand the unique challenges faced by small businesses in our community.
FAQs on NIC and Minimum Wage Increases
How can I calculate the NIC increase for my employees?
Use the formula: (Employee Salary - £5,000) × 15.0% for 2025 contributions.
What strategies can offset the increased minimum wage?
Consider adjusting prices, improving operational efficiency, or optimising staff schedules.
How does the Employment Allowance help small businesses?
It reduces your NIC liability by up to £10,500, directly lowering employment costs. Make sure you are checking your eligibility and claiming the allowance!
Why is forecasting important in light of these changes?
It allows you to anticipate financial impacts and make proactive adjustments.
Can Giraffe Accountants assist with these changes?
Absolutely! We offer expert advice and accounting services to navigate these challenges.
Contact Us
Preparing for the 2025 changes is crucial for your business's success. Contact Giraffe Accountants today for expert guidance tailored to owner-managed businesses. Visit us at Giraffe Accountants Limited.
