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March Questions and Answers

Newsletter issue – March 2025

Q:I run a relatively new business. Our employer National Insurance contributions are quite modest at this point, standing at £13,900 annually so far since we set up. I'm aware that various changes are set to come in soon but could you please summarise what we need to be preparing for?

A:You're right to be thinking about this now, with only about six weeks to go (at the time of writing) before changes to NI take effect on 6 April 2025. Rachel Reeves, the Chancellor, announced various new measures at her first Budget in October, with a rise to employers' National Insurance being among the headline changes. Despite the outcry from businesses, it doesn't look likely that the Government will shift on this policy before April, even though we are set to hear from the Chancellor at the end of March for the Spring Statement.

The main details you need to know about contribution rate increases are as follows:

  • Employer Secondary Class 1 National Insurance contributions rate will rise to 15%. In 2024/25 it was slightly lower, at 13.8%.
  • Associated Class 1A and 1B National Insurance contributions rates on expenses and benefits given to employees are also increasing to 15%.

You also should be aware of the fact that the secondary threshold for employers' NI liability is set to go down. This threshold - the point at which employers start to pay employers' NI on an employee's salary - is decreasing from £9,100 to £5,000 per year.

So that means that employers must start to pay employer NI where staff earn £5,000 a year or more. Plus, you need to report these payments to HMRC.

For any businesses about to start paying employers' NI for the first time, they will have to register with HMRC to use payroll software through PAYE.

Very importantly, and more positively for businesses like yours, changes are also afoot for The Employment Allowance, which cuts down the amount you must pay in employers' NI. As of April 6, the EA will increase from £5,000 to £10,500.

Although not relevant for you at the moment, it's worth noting that the Government has also decided to remove the existing £100,000 threshold. So, businesses with employers' NI bills above that level will be able to claim now for the first time.

If you'd like any further help or guidance on NI, Employment Allowance or payroll, please give our team a call.

Q:I'm thinking about introducing a scheme encouraging employees to bring forward ideas to improve my business, offering a significant reward for the best suggestion. I'm looking at all options including cash award prizes. What do I need to know from a tax liability perspective?

A: Introducing some kind of reward scheme for your staff could be a helpful and morale-boosting move to make. But you are right to be thinking about what the tax implications are. There are specific rules governing this, which we can summarise for you here.

Essentially, you do get a tax break - to some extent - for schemes that match certain criteria. You won't have to pay tax, NI or report anything to HMRC for awards you pay staff of up to £5,000. That is, of course, if they are being rewarded for 'suggestions that will save or make your business money,' as stated by HMRC.

There's also something called an encouragement award 'for good suggestions, or to reward your employees for special effort'. These are only exempt from tax and NI, however, for awards up to £25.

Unsurprisingly, there are also several conditions. These include:

  • all staff must be able to take part in the suggestion scheme
  • suggestions must be about your business
  • the proposal wouldn't have been put forward as part of a member of staff's standard everyday work
  • the suggestion is not made at a 'meeting for proposing new ideas'

If you decided you wanted to go above these limits, you need to be aware that any amount over and above will count as earnings, thereby attracting tax and NI in the usual manner, with the associated reporting obligations also coming into effect.

Q:I've got a couple of staff at my company who are approaching long service milestones and I want to award them with something to show appreciation and recognition. One has been here for 30 years, the other 15. How much tax would I need to pay if I want to give them a financial reward?

A: It's a lovely idea to show appreciation and recognition for your veteran staff in this way. But you're right to check about the tax implications before cementing your plans. Long-service awards do carry some reporting obligations regarding NI and tax but it all depends on what type of award you opt for. Will it be cash? Or it could be shares? These are one of the items categorised by HMRC as a 'readily convertible asset'. Or it could be something else. The total value of the award and the length of the employee's service are also key factors. You must also check whether they've had a similar award in the past at a previous milestone.

Let's take your team member who has been with you for 30 years as an example to start with. You may want to change your approach and think of a different award, rather than cash.

That's because you could give them a very significant non-cash award without having to pay any tax or report on it. You could reward them with something that has a value up to £1,500 and still be exempt. You're allowed to offer an award worth less than £50 per year of service and the fact that they have been with you more than 20 years means they qualify.

One caveat though; they would not be exempt if you have already given them another long service award in the last ten years. So, you might need to check that they didn't get one for, say, their 25th anniversary as well.

With your staff member who has been with you for 15 years, they are 5 years short of qualifying for exemption, unfortunately.

And, circling back to your thoughts on financial rewards, we should emphasise that cash awards are not exempt. All cash awards count as part of their earnings. So, if you went down a cash awards route, you would need to do the usual deductions of NI and PAYE tax through payroll.

Those are the essential points of the rules but, of course, there are even more granular details that we could dive into. For example, if you decided to offer shares as the award instead, there are some other considerations. If you'd like to discuss the finer details of your proposed long-service award scheme, please give us a call.