Employers that have said they will not hire younger people or take on apprentices as a result of the rise in employer national insurance (NI) could be making their decisions based on an ‘incorrect understanding”, a tax expert has warned.
NI that employers pay on employee earnings is set to rise from 13.8 percent to 15 percent from April 2025. On top of this, the salary threshold that determines when employers start paying it will be lowered from £9,100 pounds a year to £5,000 pounds, meaning a further increase in NI payments for employers.
But business owners planning not to take on apprentices or hire teenagers because of this change could be making a mistake.
David Maslen, head of tax at advisory firm Old Mill, said there is no employers NI for under 21s, under 25s on a formal apprenticeship or veterans on less than £50,270.
He agreed that the NI changes, unveiled in the autumn budget, are a “a tax on employment” and generally a “disincentive to employing staff”, calling the lowering of the secondary threshold from £9,100 to £5,000 “the big kicker for employers”.
“The impact of this on employers can be understood when one looks at an employee earning a salary of £9,100. Under current rules, the employer’s NI liability for that employee is zero. Under the new rules, the burden is £1,600 per year. The additional burden to employers is, therefore, huge,” he said.
“However, there are categories of employee where this additional NI burden will not arise, and this does not appear to be widely understood.
“Where a business is employing someone who is under 21, there is no employers NI unless that staff members’ salary exceeds £50,270 in the year. The same applies for a business employing someone under 25 on a formal apprenticeship. The same applies again for a business employing veteran.
“We are seeing articles where business owners are talking about not taking on young staff or cutting back on apprenticeships, which suggests that this is an area which is not understood and could be leading to businesses making decisions based on an incorrect understanding of the rules.”
