The upcoming increase in employer National Insurance Contributions (NICs) in the UK, set to rise from 13.8% to 15% from 6 April 2025, along with the reduction of the secondary threshold from £9,100 to £5,000, will significantly impact business costs.
To mitigate these effects, employers can consider the following strategies:
1. Use the Enhanced Employment Allowance
The Employment Allowance, which offsets employer NIC liabilities, will increase from £5,000 to £10,500 per year starting April 2025.
This enhancement allows eligible employers to reduce their NIC bill, effectively neutralising the impact of the rate increase for many small businesses.
2. Implement Salary Sacrifice Schemes
Salary sacrifice arrangements enable employees to exchange a portion of their salary for non-cash benefits, such as pension contributions or childcare vouchers. This reduces the gross salary on which NICs are calculated, lowering both employer and employee NIC liabilities. However, it’s essential to ensure that such schemes comply with current tax regulations and do not adversely affect employees’ entitlements.
3. Review Workforce Structure
Assessing the composition of the workforce can identify opportunities for cost savings. Employers might consider flexible working arrangements, part-time roles, or outsourcing certain functions to manage NIC liabilities more effectively. However, it’s crucial to balance these changes with operational needs and employee morale.
4. Invest in Training and Development
Enhancing employee skills can lead to increased productivity, allowing businesses to achieve more with the same or fewer resources. This approach can offset the additional costs incurred from higher NIC rates by improving overall efficiency and output.
5. Explore Tax-Efficient Benefits
Offering benefits that are exempt from NICs, such as certain health and wellbeing programs, can provide value to employees without increasing NIC liabilities. Also, reviewing the types of company cars offered to employees and removing vehicles with high emissions could help reduce Employers’ NIC payable on overall car benefits provided.
6. Plan for Future Budgeting
Incorporating the anticipated NIC increases into financial planning allows businesses to adjust budgets accordingly. This proactive approach ensures that the additional costs are accounted for, reducing the likelihood of financial strain when the changes take effect.
We can help
We can provide tailored strategies to manage NIC liabilities effectively. Please call if you are concerned about the effects of this increase on your business performance.