The below has been issued in the latest NALC Bulletin:
Employer’s National Insurance
This advice note was last updated on 6 December 2024 and was issued by our finance advisor, Parkinson Partnership LLP.
This advice note explains the impact of the government’s changes to national insurance, which parish and town councils should consider when setting their 2025/26 budget.
Change in threshold for employer’s national insurance
Many parish councils will need to budget for employer’s national insurance for the first time when setting their 2025/26 budget. They will have to pay these contributions from 6 April 2025, when the threshold where they become payable falls from £9,100 to £5,000.
Any parish or town council with employees earning more than £5,000 a year (£96 a week or £417 a month) but less than £9,100 a year will become liable for the employer’s national insurance from April and will need to register as an employer with HMRC prior to 6 April 2025.
They will also need payroll software (such as HMRC’s Basic PAYE Tools) to calculate the amounts due and submit Real Time Information to HMRC each time the staff are paid.
Any parish or town council with employees earning £9,100 or more will face an additional £615 cost for each of those employees next year just because of the change in threshold. This is in addition to the impact of the rise in the rate of employer’s national insurance and any pay award or increments that may be due.
Budgeting
In addition to the impact of the reduction in the threshold, the employer national insurance contribution rate will increase from 13.8% to 15% of salary from 6 April 2025.
If your parish or town council has a separate budget line for employer’s national insurance, please note that this will require at least an 8.7% increase in that budget (15 divided by 13.8) in addition to the impact of the threshold change, not just a 1.2% rise.
Where an employee earns less than £56,000 a year, the drop in threshold has a bigger impact than the increase in contribution rate from 13.8% to 15%. The drop adds £615 to the bill for every employee earning £9,100 or more, whereas the rise to 15% only adds £371 to the cost of employing somebody on £40,000 a year.
The percentage increase is bigger for lower paid staff. For example, a council with one employee on £9,100 a year will see £615 added to their payroll cost, a 6.75% increase.
Even a small parish or town council with one employee on £6,000 a year will find itself paying employers national insurance of £150, which requires a 2.5% increase in staff budgets. Where someone earns £8,000 a year, £450 would be payable, representing a 5.625% increase in the cost of employing them. These increases are in addition to any pay increase.
Employer’s national insurance is still due when an employee is above the state pension age, even if the employee is no longer liable to pay national insurance.
There are calculators available online to help estimate the impact. This is one example, and we can offer no guarantee of accuracy in all cases: Employers NIC Calculator FY 2025/26 UK.
Employees
There are no changes to the contribution rates or thresholds for employees and councils must not deduct the employer’s contribution from employees’ pay.
Most employees below the state pension age pay national insurance of 8% on earnings above £12,570 a year, but parish and town councils must ensure that they use the correct category letter for each person.
Multiple employers
Where two or more parish or town councils employ the same person, national insurance thresholds apply to each employer separately. For example, a clerk working for four different parish and town councils, each paying less than £5,000, would not result in any employer’s national insurance becoming payable.
Tax-exempt payments
Where payments are exempt from tax and national insurance, such as homeworking allowance up to £26 a month or approved mileage payments, these amounts do not count towards the employer’s national insurance threshold, and no employer’s national insurance is due on them. The government has provided more information on expenses and benefits.
Employment allowance
Local authorities are not currently eligible for the employment allowance, which permits eligible employers to avoid paying the first £5,000 of the employer’s national insurance contributions (rising to £10,500 from April 2025). No parish, town or community council should be claiming this allowance.
Disclaimer
This guidance is issued to assist in understanding the relevant legislation and guidance. It is not a statement of law, nor does it account for individual circumstances. The Parkinson Partnership LLP accepts no liability for any loss arising from situations where employers or employees have not followed the law and HMRC guidance.