Rising Costs in 2025: £40 Billion Blackhole — £25 Billion Passed to Employers

The UK government is facing a £40 billion financial shortfall, and according to Chancellor Rachel Reeves, it will be filled by a combination of public spending cuts and tax increases.

The most substantial portion — £25 billion — will come directly from employers, primarily through changes to National Insurance Contributions (NICs). From 6 April 2025, the employer NIC rate will rise from 13.8% to 15%, and the Secondary Threshold will fall from £9,100 to just £5,000 per employee per year.

As a UK employer, what does this mean for your business — and what can you do now to manage the rising costs?

National Minimum Wage Increase - And It’s Not Just NICs

The National Minimum Wage will also rise significantly on 1 April 2025:

• £12.21 for workers aged 21 and over
• £10.00 for those aged 18–20
• £7.55 for 16–17-year-olds and apprentices

While fair pay is a key policy objective, these changes inevitably increase the financial burden on businesses, especially SMEs already stretched thin by inflation, energy costs, and shifting supply chains.

Put simply: the cost of employing staff is going up — rapidly and across the board.

So How Can Employers Respond?

Businesses now face higher NICs, higher minimum wages, and tighter compliance expectations — all while navigating an unpredictable economic climate.

What can employers do?

There are still levers to pull — but you’ll need a well-informed strategy to ensure you're not missing out on legitimate ways to reduce your liabilities.

One example? Employment Allowance.

But before we get into that, you need to ask: Am I eligible to benefit from it?

Are You Eligible to Save?

Eligibility for Employment Allowance depends on your business type, employment structure, and historic NIC liability. If you:

• Run a business or charity,
• Employ more than one person on your payroll,
• Paid employer NICs below certain thresholds in the past...

...then you could qualify. But the rules have changed from April 2025, expanding access and increasing the potential benefit — and most importantly, removing the old £100,000 cap on employer NIC liability.

It’s now more important than ever to evaluate your eligibility properly — and that’s where speaking to a qualified accountant comes in.

What is Employment Allowance — and Why Does It Matter Now?

From 6 April 2025, Employment Allowance allows eligible employers to reduce their annual employer NICs by up to £10,500. This can represent a major cost offset, particularly for smaller businesses, new employers, and companies in labour-intensive sectors like hospitality, retail, or care.

However, it’s not automatic. You need to apply, ensure you meet the criteria, and structure your payroll correctly to take full advantage of it.

And crucially: what you don’t claim, you lose.

The Bigger Picture: Business Survival in a “New Fiscal Era”

The increase in employer NICs and national wages is just the beginning. The government has signaled a shift toward what some are calling a “new world order” of taxation and public finance, driven by:

• Austerity-style spending cuts,
• War-induced global trade disruption,
• And an ongoing strategy of tax-funded service investment.

In this climate, every business — large or small — must be proactive.

• Are you structured efficiently for tax purposes?
• Are you taking full advantage of reliefs and allowances?
• Are you managing your employment costs effectively?
• Are your compliance practices future-proofed?

Let Us Help You Plan Ahead: At Elaga Accountancy, we help UK businesses like yours navigate financial change with smart planning, clear advice, and hands-on support.

Whether you’re looking to evaluate your Employment Allowance eligibility, reconfigure your payroll, or develop a cost-saving strategy for 2025 and beyond — we’re here to help. We’ll be publishing more insights in this blog series — stay tuned. How to save costs and taxes? In the meantime, speak to us today to protect your business against rising costs, and discover where you can save.

***Contact us to learn more.

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