We were all expecting this year’s budget to be momentous. Not only because it was the first Labour budget for 14 years and the first budget ever to be delivered by a woman but, because it needed to set in motion measures to fill the £22bn “black hole” in public finances that was first made public at the end of July.

The Labour manifesto promised not to increase taxes on working people, specifically excluding any increase in “national insurance, the basic, higher, or additional rates of income tax, or VAT”. To compensate though, the manifesto did outline some tax raising measures all of which were confirmed in the budget (i.e. VAT on private school fees, increasing the energy profits levy and changing the residence-based regime). However, those measures alone will not be enough to fill the shortfall in the public finances, so Ms Reeves and her team needed to find a way of raising taxes without it adversely affecting working people. Their solution is to raise capital taxes through an increase in the rate of CGT and revisions to the reliefs available in respect of IHT. Plus, and this is the big one, they have decided to increase employer national insurance contributions – this measure alone is expected to raise £20bn per year for the public purse.

The changes to employer NIC from April 2025 are two-fold:

• The rate at which NI is payable will increase from 13.8% to 15%
• The threshold at which employers will start to pay NI for an employee will fall from £9,100 down to £5,000

Therefore, employers will start paying national insurance sooner and at an increased rate.

To offset some of this increase, Ms Reeve also announced that the annual employment allowance that currently covers the first £5,000 of an employer’s national insurance bill would be increased to £10,500 per year. But dentists need to bear in mind that this increase might not help all dental practices as those with NHS contracts will not be able to claim if more than 50% of their daily function is dedicated to NHS services (i.e. more than 50% of their overall income comes from the NHS). In addition, only one practice may be able to claim the employment allowance if it is part of a group.

To put all of that into context, the additional national insurance due for a nurse earning £15 per hour and working 40 hours per week would be £880 per year. To offset this, the increase in the employment allowance will be £5,500 per year so your practice is likely to be better off under the new budget if you have 6 or fewer full-time employees. Conversely, larger practices with more, higher paid staff are likely to be worse off and NHS practices will suffer the most.

It will be a balancing act for many practice owners from April. The increase in national insurance along with the 6.7% increase in the national minimum wage (£12.21 per hour for those 22 and over) could lead to a substantial increase in staff costs. If you’d like help with reviewing your anticipated staff costs next year, or think you’d benefit from an outside perspective on your practice’s finances, please get in touch.