Vinku Shah examines how independent pharmacies can deal with the impact of Labour’s autumn Budget…

The increase in employer national insurance contributions was the biggest tax increase announced during the Autumn Budget of October of 2024 and will cover more than 50 per cent of the £40 billion the Labour Government seeks to raise through taxes.

This increase along with the increase in the national minimum wage will have a significant impact on community pharmacies that are in dire need of cash flow with no imminent news of a new funding contract agreed.

National minimum wage

The National Minimum Wage rates are set to increase from 01 April 2025 following the Government’s acceptance of the Low Pay Commission’s recommendations on the national minimum wage and National Living Wage rates.

The highest increase will be given to apprentices and 16 and 17-year-olds (18 per cent) followed by 18-20 year olds (16.3 per cent). Those on National Living Wage will get a 6.7 per cent increase from April 1, 2025.

Employer NI

From 06 April 2025, the annual secondary Class 1 NI threshold will reduce from £9,100 to £5,000. At the same time, the rate for secondary Class 1 NI will increase to 15% from 13.8%. The Class1A and 1B employer rates that are applicable to taxable benefits-in-kind will also increase in line with this.

Employees with a monthly gross salary of more than £416.66 (£5,000/12) per month from 01 April 2025 will start costing the business Employer NI. This is currently £758.33 (£9,100/12) from 01 April 2024 to 31 March 2025.

As a compensation, the Annual Employer Allowance will increase from £5,000 to £10,500 from 06 April 2024. But does the increase in Annual Employer Allowance compensate for the rise in Employer NI and minimum wage increases? Below we tabulate the impact of the increases based on average salaries.

The average salaries in the above table are from Indeed.com and could differ regionally. Based on the above, there is a saving of £1,903 but this would only be the case for the small owner managed business and does not take into account any salary increases that will be expected in 2025/2026.

This also excludes any additional staff on minimum wage or part time staff that will exceed the Employer NI threshold.

For businesses operating larger or multiple pharmacies, any cost benefit from the increase Employer Allowance will disappear.

Strategies for mitigating the impact

Pharmacy businesses can consider several strategies to mitigate the financial impact of these changes:

Operational efficiency: Streamlining operations and adopting new technologies can help reduce costs. For example, implementing automated dispensing systems can improve efficiency and reduce the need for additional staff. There are also corporation tax advantages available for investing in technology.

Service diversification: Expanding the range of services offered, such as health screenings, vaccination clinics, and wellness programs, can generate additional revenue streams.

Staff training and development: Investing in staff training can improve productivity and service quality, helping to justify higher wages and potentially attracting more business.

Cost management: Regularly reviewing and managing other operational costs, such as utilities, supplies, and inventory control, can help free up resources to cover increased wage and NICs expenses.

Professional advice: Speaking to your accountant on what can be done to mitigate the additional costs through careful planning and consideration of cash flow.

The autumn Budget announced £22 billion boost to the NHS and remains to be seen how much will be allocated to community pharmacy. In the meantime, it is important to plan ahead and try to manage cost increases early.

Vinku Shah FCCA is a chartered certified accountant and partner at Silver Levene LLP. He can be contacted on 020 7383 3200 or vinku.shah@silverlevene.co.uk