With thanks to Croner-i.
For you and to let your clients know about the following increase in costs.
From April 2025, the operational costs for businesses are increasing significantly, mainly due to three factors: increases in the National Minimum Wage rates, and increased employer National Insurance contributions and business rates. This is in addition to other increases in costs, such as rising fuel prices, increased goods bought for resale of manufacturing and any potential tariffs that may be imposed. Businesses need to ascertain what these costs will be and how to manage them.
National Minimum Wage
Effective from 1 April 2025, the National Minimum Wage rates are increasing as follows.
21 and over | 18 to 20 | Under 18 | Apprentice | |
Current rate | £11.44 | £8.60 | £6.40 | £6.40 |
From April 2025 | £12.21 | £10.00 | £7.55 | £7.55 |
Consider a business with five employees, with the following wages and ages.
Name | Age | Current hourly rate |
Jo | 17 | £6.40 |
Mark | 19 | £8.60 |
Kirsten | 19 | £9.50 |
Ahmed | Over 21 | £12.00 |
Mary | Over 21 | £11.44 |
Three employees are paid the National Minimum Wage (Jo, Mark and Mary). The other two are paid slightly more. From April, each of these employees will receive a pay rise to the new National Minimum Wage, as shown below.
Name | Current hourly rate | New hourly rate | Increase |
Jo | £6.40 | £7.55 | £1.15 |
Mark | £8.60 | £10.00 | £1.40 |
Kirsten | £9.50 | £10.00 | £0.50 |
Ahmed | £12.00 | £12.21 | £0.21 |
Mary | £11.44 | £12.21 | £0.77 |
If each person works for 40 hours a week and is paid for all 52 weeks of the year, the increase in wage cost is as follows.
Name | Hourly increase | Weekly increase | Annual increase |
Jo | £1.15 | £46.00 | £2392.00 |
Mark | £1.40 | £56.00 | £2240.00 |
Kirsten | £0.50 | £20.00 | £1040.00 |
Ahmed | £0.21 | £8.40 | £436.80 |
Mary | £0.77 | £30.80 | £1601.60 |
This increases the total cost of the wages of these five employees by about £7710, a significant amount for any small employer.
The largest National Minimum Wage increases are for under 18s and apprentices (18% increase), closely followed by those under 21 (16%). The increase in minimum wage for those over 21 is 6%. The employees who were paid more than the old previous minimum wage may, of course, expect to get paid more than the new minimum wage.
The only way to mitigate this cost is to reduce hours or staff numbers. For example, if a person aged 19 is normally paid for 2080 hours a year (40 hours for 52 weeks), they would have been paid £17,888 a year using the old National Minimum Wage rates. To maintain that level of cost, the individual’s hours would have to be reduced to 1789, a 14% reduction in hours. While this maintains the cost of the salaries, the impact upon staff as well on productivity needs to be considered.
To calculate the increase in cost, you must multiply the increase in amount that each employee is to be paid by the number of hours they are paid for in the year.
Employer National Insurance contributions
Employer National Insurance contributions (employer NICs) are also increasing from 6 April 2025, the start of the new tax year. The rate is going up from 13.8% to 15%. In addition, the threshold when the employer becomes liable to pay employer NICs has reduced from £175 a week to £96.15 a week.
This will increase employment costs for all businesses, though a small amount of amelioration is provided by an increase in the employer’s allowance.
The impact of the changes in the employer NICs for the five employees detailed above will be as follows for a 40-hour week.
Name | Current hourly rate | Weekly pay | Employer NICs threshold | Subject to NIC | Weekly NICs 13.8% |
Jo | £6.40 | £256 | £175 | £81 | £11.18 |
Mark | £8.60 | £344 | £175 | £169 | £23.32 |
Kirsten | £9.50 | £380 | £175 | £205 | £28.29 |
Ahmed | £12.00 | £480 | £175 | £305 | £42.09 |
Mary | £11.44 | £457.60 | £175 | £282.60 | £39.00 |
This gives a total weekly employer NIC of £143.88. The annual cost will be £7481.76. The amount will be more than this if there are other employees.
The business will be able to claim the £5000 employer’s allowance, reducing the total employer NICs cost to £2481.76.
The amount of employer NICs due for the five employees at the new National Minimum Wage rates will be as below.
Name | Current hourly rate | Weekly pay | Employer NICs threshold | Subject to NICs | Weekly NICs 15% |
Jo | £7.55 | £302 | £95.15 | £206.85 | £28.54 |
Mark | £10.00 | £400 | £95.15 | £304.85 | £42.07 |
Kirsten | £10.00 | £400 | £95.15 | £304.85 | £42.07 |
Ahmed | £12.21 | £488.40 | £95.15 | £393.25 | £54.27 |
Mary | £12.21 | £488.40 | £95.15 | £393.25 | £54.27 |
This gives a total weekly employer NICs cost of £221.22. The annual cost will be £11,503.44. The amount will be more than this if there are other employees.
The business will be able to claim the new increased £10,500 employer’s allowance, reducing the total employer NICs cost to £1,003.44. Thus, if there are just five employees being paid the minimum wage (at the rates given above) the employer NICs cost will reduce due to the effect of the employer’s allowance. However, where there are just two more employees over 21 being paid the minimum wage, the amount of employer NICs will increase due to the higher rate of NICs despite the more generous employer’s allowance. The “tipping point” is seven employees. If there are seven or more employees being paid the minimum wage, employer NICs will increase using the new rates despite the employer’s allowance.
The employer’s allowance needs to be claimed every year. Claims can be made for the previous four years. Businesses are eligible to claim if their Class 1 employer NIC was less than £100,000 in the previous tax year.
Business rates
Business rates will also be an increased cost for businesses this year. Business rates were cut by 75% in 2022 but this relief is being changed to 40% in April. So it is expected that an average retailer’s business rates will increase from £3750 a year to £9000.
Restaurants will see an increase from £5,500 to £13,300 a year, according to recent research. Similar increases will be incurred by many other businesses. The British Retail Consortium has found that business rates equate to more than 5% of pre-tax profit for retailers.
The Government has pledged to reform business rates to remove a number of anomalies. The revisions will not, however, be introduced until April 2026 at the earliest. This will coincide with the 2026 revaluation of rates which may cause an increase in the cost of rates.
To determine the cost of business rates, businesses will need to find their business rates valuation, which can be accessed here. The rates valuation will need to be multiplied by a business rates multiplier to calculate the rates due.
The multiplier has been held for 2025/26 at the 2024/25 rate; 54.6p for the standard multiplier and 49.9p for the small business multiplier.
It should also be noted that there are various reliefs and exemptions available. HM Revenue & Customs (HMRC) provides guidance on how to estimate the business rates due; this is available at Estimate your business rates – GOV.UK
Scotland and Northern Ireland have a different rates system to England and Wales. Costs are also altering in these regions. For example, whilst the basic property rate for non-domestic rates has not changed, the intermediary and higher property rates in Scotland have increased.
Conclusion
Businesses are going to incur a number of extra costs from April 2025. This includes increased minimum wage costs, increased employer NICs, additional business rates, higher energy bills as well as other costs from suppliers that will inevitably increase. It is important for these businesses to determine what their increased costs will be to ensure that they do not run into financial difficulties over the next year or so. Businesses need to take action now to reduce costs and tighten budgets to retain profitability.
Kind regards,
Howard Gross BFP FCA FCCA CTA
Director
