December 2024

Preparing for 2025

If you’d tried to read all the column inches or online articles speculating about Rachel Reeves’ recent budget announcement, then you’ll have realised such is the volume of material on the subject that it’s an impossible task to keep on top of everything. “There’s almost too much information really”, agrees Oliver Acton of Frank Taylor & Associates, “and sometimes it’s hard to tell what is and isn’t going to impact you. Whilst any practice owner is going to want to be proactive in running their business, in circumstances like the government’s budget, you can really only be reactive once the announcements are made and there’s a degree of certainty over what is actually happening. The key is to react appropriately, and the fact that the changes don’t take effect until April 2025 does leave some time for preparation.”

“Two of the most obvious changes will be on staffing costs” continues Oliver, “whether a practice employs staff directly, or contracts services via a third party, the impact is likely to be very similar, with costs increasing.”

The first change will be in employers’ national insurance contributions which will rise from 13.8% to 15%. Whilst on the face of it this seems like an increase of 1.2%, in fact the increase is 1.2% on a base of 13.8%, so the actual increase in national insurance contributions is nearer 9%. It’s easier explained with a simplified example. Suppose a staff member was paid an annual salary of £50,000. Today the employer’s annual national insurance contribution would be £6,900, from April this cost will rise to £7,500, even when the salary remains the same.

The second change is in the minimum wage which, for employees over 21, will rise from £11.44 per hour to £12.21per hour, and for staff under 21 from £8.60 to £10.00 per hour. These increases are 7% and 16% respectively. Keep in mind that not every practice will employee staff at the minimum wage, but the increase in the rate will mean that more staff may fall into this bracket when they haven’t been previously, and to maintain differentiation in salary bands for staff it may be necessary to increase the salaries of those who are currently earning at, or just above, the threshold too. It’s also worth noting that some practices may contract out particular services, in which case the supplier will be experiencing these additional cost pressures and may therefore need to pass some or all of them on in terms of increased costs. Remember too that the aforementioned national insurance increases will apply to these increased pay rates.

“Whilst this doesn’t sound a great outcome”, says Oliver, “there’s certainly no need to panic. There is some good news too, the employment allowance has doubled, to £10,500, together with a relaxation of eligibility rules, which provides an opportunity for smaller practices to offset some of the increased national insurance costs. In addition, there is time to plan for the change, and to ensure practices are aware which costs they can absorb, and which may need to be passed on in increased charges. It’s a good opportunity to review the cost structure within a practice to ensure that everything is as cost effective as it can be. For example, when was the last time you properly reviewed insurance or utility contracts?  More generally in the recent past we have had to respond to the impact of the pandemic and then the inflationary pressures caused by rising utilities costs due to the war in Ukraine.  There was almost no notice for these much more impactful events so it speaks volumes for the level of resilience and adaptability in the industry and I am confident the same can happen now.”