The new tax year is fast approaching, and subject to the government’s National Insurance Contributions bill receiving the final royal assent, we will have a new rate of employers National Insurance Contributions (“NIC”) of 15% taking effect for payroll periods commencing April 2025. Here is one potential action employers could undertake to mitigate the effects of this increase.
Implement Pension Salary Sacrifice
If you don’t already have pension salary sacrifice in place, now is the time to reconsider implementing it.
What is it?
- A change to an employee’s terms and conditions whereby the employee agrees to reduce their salary in exchange for all pension contributions to be made by the employer
- Employees take home pay increases
- Employers’ NIC bill reduces
- The same amount goes into the employees’ pension pot
- It is a win-win scenario
Typically, for every £160,000 paid into the company’s employer pension scheme (£100,000 employee contribution and £60,000 employer contribution), the business could save £15,000 per annum.
Demystifying common misconceptions relating to salary sacrifice:
- The arrangement can be offered to all employees (providing their pay is above the National Minimum Wage after the sacrifice)
- It is HMRC compliant, providing that the changes to terms and conditions are communicated correctly to employees. Because of the latter point and ensuring compliance with National Minimum Wage it is essential to seek professional tax advice to ensure both employee and employer benefit from the savings.
- Costs to implement are not as high as you would think, and typically, the arrangement is cost-neutral for the employer within 6 months.
- It shouldn’t impact an employee’s mortgage application. The arrangement is common and well-understood by lenders.
What could I do now?
- Check how close employees’ pay is to NMW. From April 25, if an employee is paid above £12.86, then typically, they can participate in pension salary sacrifice. The limit may be lower depending on your definition of pensionable pay.
- Check the total amount of employee contributions paid to your pension provider each month and ask your local BHP advisor to provide an estimate on the annual savings you could make.
For other potential actions employers could undertake to mitigate the National Insurance increases, read this blog.
For more information, please contact Kyle Newton, Tax Partner.
