With the upcoming rise in employer National Insurance Contributions (NIC) to 15% from 6 April, businesses have a limited window to take action and mitigate the financial impact. By implementing strategic, cost-effective remuneration alternatives, businesses can continue to attract and retain talent while reducing overall payroll expenses.
A recent report by the Confederation of British Industry (CBI) estimated that the NIC hike will cost UK businesses around £25 billion in the coming year. Meanwhile, a Bank of England survey found that 54% of businesses are planning job cuts in response. Rather than resorting to downsizing, employers can adopt tax-efficient strategies that optimise benefits for both the business and employees.
To help organisations navigate these changes, we have developed a five-point guide outlining practical, non-salary alternatives that help minimise costs, boost recruitment and improve staff retention. These strategies can also free up cash flow for investment in innovation, training, marketing, and employee wellbeing.
Our guide includes straightforward options, such as leveraging tax exemptions on annual functions, as well as more complex approaches, like implementing workplace nursery schemes.
Five Ways to Reduce the Impact of the 15% NIC Rate
1. Tax Planning: Optimising Policies for NIC Savings
- Implement salary sacrifice schemes for pensions, electric vehicles, cycle-to-work programmes, and additional annual leave purchases.
- Review benefits and expenses policies to maximise tax efficiency, particularly company vehicle schemes.
- Consider a tronc scheme (a tax-efficient tipping structure common in the hospitality sector) to achieve NIC savings.
2. Maximising Tax Reliefs & Exemptions
- Take advantage of tax-free benefits, including the trivial benefits exemption, annual functions exemption, workplace nursery exemption, and canteen exemption.
- Reclaim NIC on employee mileage payments, ensuring compliance with HMRC guidelines.
3. Offering Discounted Non-Cash Benefits & Rewards
- Provide discounted experiences, such as event tickets or weekend trips.
- Organise educational and wellbeing programmes to improve employee engagement.
- Offer tax-efficient perks like gift cards, mobile phones, or gym memberships.
4. Strategic Hiring & Workforce Planning
- Hire apprentices to benefit from government incentives.
- Introduce job-sharing and flexible working arrangements to optimise staffing costs.
- Employ armed forces veterans to access national insurance relief.
- Utilise Freeport zones for tax advantages, ensuring qualifying conditions are met.
- Consider outsourcing non-core activities, while remaining mindful of IR35 implications.
5. Implementing Employee Incentive Schemes
- Enterprise Management Incentive (EMI) schemes – tax-efficient share options for startups and high-growth businesses.
- Company Share Option Plan (CSOP) – allows employees to acquire shares without incurring NIC or income tax.
- Share Incentive Plan (SIP) – offers employees tax-free share ownership if held for 3–5 years in a SIP trust.
- Unapproved employee share schemes – enable employees to share in business growth, with varied tax implications.
Future-Proofing Your Business
The increase in employer NIC is already having a significant financial impact, with many businesses cutting costs, reducing investment, or considering redundancies. However, proactive tax planning and innovative remuneration strategies can help employers navigate these challenges while continuing to motivate and retain staff.
Given the complexities of employment tax and NIC regulations, businesses should seek expert advice to ensure compliance and maximise savings.
Need Expert Guidance?
If you’re concerned about the NIC increase and its impact on your business, our specialist advisors are here to help. Get in touch via the contact form below or speak to your usual VPC advisor for tailored advice.
This article provides general guidance and is correct at the time of publication. Tax regulations may change, and we recommend seeking professional advice before making financial decisions based on this content.
