Increase to statutory payments compensation rates

On 28 January 2025, HMRC announced the compensation rate for Small Employers Relief (SER) for statutory payments will increase from 3% to 8.5%, from 6 April 2025, this will be good news for small employers ahead of the planned increase to employer NI contributions effective from 6 April 2025 which will see the secondary threshold reduce to ￡5,000 and the NI percentage rate, rise from 13.8 to 15%.

Eligibility for the SER depends on the total gross, employer’s plus employee’s, Class 1 NICs in the last complete tax year before the employee’s Qualifying Week (QW) or Matching Week (MW) for adoptions.

If the annual liability for Class 1 NICs is ￡45,000 or less the employer is entitled to claim 100% of the statutory payments (SMP, SAP, SPP, ShPP, SPBP and Statutory Neonatal Care Pay (SNCP), the new entitlement which will come into effect from 6 April 2025.

Employers that meet this criteria will be entitled to claim compensation for the NICs they pay to the value of 8.5% in addition to the full amount of the statutory payments.

If an employer starts a new business during the qualifying tax year and there are fewer than twelve monthly payments made to the HMRC Accounts Office, the payments must be pro-rated in order to establish whether the annual ￡45,000 threshold has been exceeded or not.

Employers must take care to look at each employee and each tax year in isolation. If an employer qualifies for one employee or in one tax year, this does not result in automatic qualification for all employees or all future tax years.

Employers that exceed the threshold can recover 92% of the statutory payments but must self-fund the remaining 8%.

Employers claim the relief by reducing the total employer/employee NIC pay bill prior to paying over the liabilities to HMRC in the relevant tax period and must include the amount in an Employer Payment Summary (EPS) report sent to HMRC.

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