How the Employers’ National Insurance Rise Will Affect Small Businesses – and How to Prepare

In the 2024 Autumn Budget, Chancellor Rachel Reeves announced a rise in employers’ National Insurance contributions (NICs), increasing from 13.8% to 15% from April 2025. At the same time, the threshold at which employers start paying NICs (the secondary threshold) will decrease from £9,100 to £5,000 per year.

For many small businesses, payroll is already one of the largest expenses. This change will add further strain, especially with rising wages and inflation. However, the government has increased the Employment Allowance from £5,000 to £10,500, removing the £100,000 eligibility cap, which may help offset some of the additional costs for smaller employers.

With these changes on the horizon, it’s more important than ever to have a proactive financial strategy. Smart bookkeeping and cost management can make all the difference. One of the most effective ways to manage the increasing costs is outsourcing your accounts department. Here’s why this could be the right move for your business.

Why Outsourcing Your Accounts Department Could Save You Money

Many SMEs struggle with in-house bookkeeping and payroll, often dedicating too much time and resources to financial admin rather than focusing on growth. With the rise in NICs, it’s time to rethink how you manage your finances.

By outsourcing your accounts department, you can:

• Reduce overheads – Hiring in-house financial staff comes with salaries, pensions, and now increased NIC costs. Outsourcing eliminates these expenses while giving you access to expert financial advice.

• Improve cash flow management – Professional bookkeepers ensure your finances are in order, helping you stay ahead of tax obligations and avoid unnecessary penalties.

• Access financial insights – With real-time financial reporting and analysis, you can make smarter decisions about your business, from pricing strategies to investment plans.

• Stay compliant with HMRC regulations – Tax and payroll rules are complex and constantly changing. An outsourced accountant ensures you remain compliant while maximising allowances and deductions.

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How Small Businesses Can Offset Higher NIC Costs

If you’re concerned about how these changes will affect your bottom line, there are several strategies to consider:

1. Optimise Payroll and Employee Benefits

• Salary sacrifice schemes – These allow employees to exchange part of their salary for benefits like pension contributions, reducing both their and your NIC bill.

• Flexible working arrangements – Allowing more staff to work remotely could help reduce office expenses, freeing up cash for other priorities.

2. Streamline Operations and Cut Unnecessary Costs

• Use technology to automate tasks – AI-powered accounting software and payroll systems can cut down on manual work, making processes more efficient.

• Review subscriptions and supplier contracts – Regularly assess all expenses and negotiate better rates where possible.

3. Explore Tax Reliefs and Incentives

• Employment Allowance – Make sure you claim the increased £10,500 allowance from April 2025.

• Research and Development (R&D) tax credits – If your business is involved in innovation, you may be eligible for significant tax relief.

4. Consider Outsourcing Non-Core Functions

• Payroll, HR, and marketing – Outsourcing these departments can free up time and resources while ensuring compliance and efficiency.

• Use self-employed contractors where possible – Reducing reliance on full-time employees can lower NIC costs.

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How Are Other Businesses Responding?

Many SMEs are already making changes ahead of April 2025. Some are reducing recruitment plans, others are increasing prices, and some are cutting non-essential costs to absorb the extra burden.

For example, a small theatre school in Scotland estimates the NIC rise will add £60,000 annually to its staff costs. To mitigate this, they are reviewing budgets, pausing new hires, and looking for additional revenue streams. Meanwhile, start-ups and growing businesses are finding it harder to plan long-term due to the unpredictable cost increases.

Final Thoughts: Planning Ahead for 2025

While rising costs pose challenges, small businesses are known for their resilience. With careful planning and the right financial support, you can navigate these changes successfully.

Outsourcing your bookkeeping and payroll could be the key to cutting costs while maintaining efficiency. By ensuring accurate financial reporting, proactive tax planning, and strategic cost management, an outsourced accounts department can help your business stay ahead of the curve.

If you’re looking for expert bookkeeping and payroll support, get in touch today. Let’s build a strategy to keep your business strong in 2025 and beyond.