A major hike in National Insurance (NI) contributions for employers is looming and now is the time for all businesses to consider ways of softening the blow.
That is the view of Ian Parker, Director of chartered accountants and business advisors Whitley Stimpson, following Chancellor Rachel Reeves’ first budget which saw her announce a significant increase in the employers’ NI rate from 13.8 per cent to 15 per cent from April 6, 2025.
The level at which employers start paying NI has also been slashed from £9,100 to £5,000. This will cost employers an additional £900 for each employee on average earnings, according to the Institute for Fiscal Studies and has prompted fears of pay freezes and even job losses.
But there are ways of helping reduce the impact of these changes through salary sacrifice schemes.
Ian said:
“Employers and their staff shouldn’t panic when they see these figures. Salary sacrifice, particularly in the form of extra pension contributions or other initiatives such as childcare vouchers, cycle-to-work schemes, electric vehicle leasing or medical insurance can make a difference.”
Salary sacrifice allows employees to make contributions from their gross salary which means their taxable income is reduced along with their NI contributions while employers could save up to 15 per cent.
It could be particularly beneficial for higher rate tax payers with incomes between £100,000 and £125,400, as it can help preserve their personal allowance while some employees may be able to keep their income below the £60,000 higher income child benefit charge threshold.
However, it should be remembered that anything dependent on an employee’s gross pay such as Statutory Maternity or Paternity Pay and the ability to take out mortgages and loans can be affected by such schemes. Also, salary sacrifice can’t reduce an employee’s pay to a level below the National Minimum Wage.
“That is why it is really important that salary sacrifice schemes are set up properly so that both employer and employee gain the maximum benefits without losing out in other areas,” added Ian.
“It will really pay to seek advice, and we have experts on hand at Whitley Stimpson to offer guidance tailored to specific circumstances which will allow everyone to gain the maximum benefit and help avoid the impact of these new changes in NI contributions.”
For further information contact Ian Parker.