When the changes to employer National Insurance Contributions (NICs) were announced, employers were keen to point out the damaging effect they would have.
On 6 April 2025, the employer NIC rate increased from 13.8 per cent to 15 per cent and the threshold for employee earnings that require employer NICs dropped to £5000 a year.
It was projected that this would add £23.9 billion of extra costs, but the changes actually amounted to an extra £28 billion.
When considered alongside other reforms, employer costs jumped from £116 billion to £143.9 billion in the last tax year.
Employers should now be looking at reducing their tax bills as this tax year is set to bring in even more revenue for HMRC.
Salary sacrifice
Salary sacrifice schemes allow you to reward employees with non-cash benefits such as pensions or private healthcare in place of part of their salary.
Employees will generally also pay less tax from these arrangements, allowing them to feel more of the value of their work.
Gross salary, the figure that is used for NIC calculations, is reduced, so both employees and employers pay lower NICs.
Pensions
One of the most popular forms of salary exchange is when income is added to a pension pot instead.
Rather than making contributions after earnings are taxed, pension sacrifice schemes let employees give up part of their salary for higher employer pension contributions.
Both Income Tax and NICs will be calculated after this salary reduction, so these expenses should be reduced.
Dividends
If you are a director, you may want to pay yourself more with dividends than with income.
Unlike a salary, dividends are not subject to NICs, making them more tax-efficient.
Since April 2026, dividend tax rates have increased by two per cent for both basic and higher rate taxpayers, but they have not lost their tax efficiency, as the tax rates are still lower than those for Income Tax.
How we can help
Rising costs are putting pressure on businesses and NICs only add to these challenges.
Our expert team can help you become more tax-efficient while staying fully compliant with contemporary tax law.
Get in touch to bring your NICs back under control.
