Jennifer Scott and Hana Ali, in our Charities & Education team, look at the potential impact of changes relating to National Insurance on the charity sector.
As part of the Autumn Budget, Chancellor Rachel Reeves announced an increase in the rate of employer National Insurance contributions (NIC) from 13.8% to 15%, as well as a reduction in the threshold at which employers begin to pay NIC, decreasing from £9,100 to £5,000 per annum. These changes, effective from 6 April 2025, are expected to be the largest source of additional revenue within the Budget. The Office for Budget Responsibility (OBR) estimates this will result in an average annual tax increase of more than £800 per employee.
The government will increase the Employment Allowance to £10,500 and remove the threshold that previously restricted claims to employers with NIC bills of £100,000 or less. The Chancellor argues that this will protect the smallest businesses and means more than half of employers will either see no change or will gain from these changes.
There have been growing concerns from charities regarding the effect that the increase will have. The National Council for Voluntary Organisations (NCVO) and the Association of Chief Executives of Voluntary Organisations (ACEVO) have sent a joint letter to the Treasury expressing their apprehensions concerning the impact of the NIC increase on the charity sector. NCVO estimates that this rise in employer NIC will impose an additional annual cost of £1.4 billion on UK charities. This comes at a time when the charity sector is struggling to meet the rising demand for charitable services coupled with rising operational costs. NCVO and ACEVO also expressed £the harsh reality” that the changes to NIC are likely to result in staff reductions, salary cuts, and a decrease in the availability of services.
In light of these concerns, the NCVO and ACEVO have urged the government to reimburse voluntary organisations’ increased employer NIC, similar to the support extended to the public sector, to prevent detrimental cuts within the third sector. Additionally, the Charity Finance Group (CFG) is conducting a survey to better understand the impact the increase in NIC will have on the sector to provide information that can be shared with the government.
While the true impact of the Budget is yet to be seen, there are concerns for the impact NIC changes will have on the charity sector, while charities prepare to adjust.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
