Preparing for this year’s National Insurance increases: Salary Sacrifice

At a time when many costs are on the increase for businesses, Chancellor Rachel Reeves announced the largest single change to NI contributions in years in her inaugural Autumn Budget.

This announcement, expected to raise £25 Billion annually involves an increase to required Employer contribution levels from the 2025/26 tax year, with the earnings threshold triggering the payment also being reduced considerably. Despite these changes expected to go some way towards the reported “blackhole” in public finances, many businesses will be looking at ways to help ease significantly higher staffing costs going forwards. 

Employers need to be aware that from April 2025: 

• Their employer NI rate will be increasing from 13.8% to 15%. 
• The employee earnings threshold, above which this increased rate will apply will decrease from £9,100 to £5,000. 

For any employee on minimum wage, employers can expect this increase to result in an additional £770 being paid in respect of employer NI contributions annually. For workers on the average UK salary (2024/25), this increase rises to c£990. 

Salary sacrifice

There could however be some relief available to employers in the form of Salary Sacrifice, also known as Salary Exchange. This is an alternative tax relief method allowing for non-cash benefits to be deducted from an employees pre-tax salary.  

While employee benefits such as Cycle To Work schemes, car leasing and even some gym memberships are potentially deductible via Salary Sacrifice, the most common and notable for most businesses will be pension contributions. By utilising this arrangement for this purpose, the taxable salary of employees is reduced, providing a saving on NICs for both the employee and the employer. Some employers may well then choose to pass on their employer 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 where affordable, can provide an enhanced pension benefit without any additional cost to the company, which could then further employee wellbeing and morale. 

Considering utilising Salary Sacrifice, particularly for pension contributions could not only provide some assistance to businesses impacted by the NI increases but also remains an effective way to encourage saving towards an employee’s retirement. In many instances it may also result in a slight increase in the employee’s take home pay. 

If you employ staff and are considering utilising Salary Sacrifice, please note there are some additional administration and regulatory considerations, such as employee Salary Sacrifice agreements. 

To better understand if you can benefit from using Salary Sacrifice for pension contributions and any additional administration or regulatory obligations please contact our Financial Planning team on +44 (0) 330 124 1399 or provide your details via 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.