Many companies will have let out a groan following UK Chancellor Rachel Reeves’ National Insurance (NI) announcement in the recent 2024 Autumn Budget. During a period where many costs are on the rise, it was revealed that Employer NI contributions will increase in the 2025/26 tax year, with the earnings threshold that triggers this payment also dropping considerably – representing the largest single change to NI contributions in years.

Whilst these changes will play a part in the Chancellor’s aim to fill the “blackhole” in public finances, with this expected to raise c£25 billion annually, businesses will be looking to find a way to cope with significantly higher payroll costs going forwards.

A summary of the changes

From April 2025:

• The NI rate will increase from 13.8% to 15%.
• The threshold from which NI rates apply on employee earnings will drop from £9,100 to £5,000.

To put this into context, the Institute for Fiscal Studies, calculates employers can expect to pay an additional £770 per annum in NI contributions for every worker on minimum wage alone – this rises to c£900pa for an average salary employee earning £33,000pa.

Fortunately, there is a degree of respite for some businesses who are eligible for the Employment Allowance, which has risen from £5,000 to £10,500 and the £100,000 upper threshold has been removed allowing for more companies to meet the criteria for this.

Is Salary Sacrifice the key?

Salary Sacrifice, or Salary Exchange, is an alternative tax relief method available which allows for non-cash benefits to be deducted from an employee’s salary pre-tax – the most notable of these is pension contributions. By utilising this arrangement, it reduces the taxable salary of an employee and thus provides a saving on NICs for both the employee and the employer.

This could provide some much-needed relief for companies impacted by the NI increases, whilst also remaining an effective way to encourage saving towards an employee’s retirement and providing an important benefit. Further to this, the tax and NIC savings for the employee typically results in a slightly increased take home pay – a win-win for all parties!

In addition, it is worth noting that some employers do choose to pass on the NIC saving (either in part or in full) to their employees in the form of an increased employer pension contribution. This is purely optional, but it is worth consideration as an enhancement to the provided pension benefit, which is not causing any additional cost to the company (as it would be taxed anyway) yet adds to employee wellbeing and morale.

How can Craven Street Wealth help?

If you are an employer and utilising Salary Sacrifice is of interest, particularly in relation to pensions, it is worth noting that operating this type of scheme does introduce some additional administration and regulatory considerations, such as employee Salary Sacrifice agreements.

Through our Craven Street Wealth corporate service, we can provide advice and assistance in the implementation of your Salary Sacrifice scheme, and ensure all necessary regulatory matters are dealt with both at source with the pension provider & payroll, as well as with the employees.

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To better understand Salary Sacrifice and our corporate service, please contact us on 0330 320 9280, email info@cravenstreetwealth.com or complete our  online enquiry form

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

Craven Street Financial Planning Limited is authorised and regulated by the Financial Conduct Authority.