A new tax year has begun in the UK and SMEs are facing challenges with regards to the rise in Employer National Insurance Contributions. It is affecting hiring and payrises for employees. Amy Hancock, Owner of accountancy practice, Hancock & Hastings, explores what SMEs can do to handle this rise in bills.
As the new tax year begins and legislative changes are introduced, small business leaders are faced with a whole host of new challenges. Effective immediately, employer National Insurance Contributions (NIC) are rising from 13.8% to 15%, whilst the threshold at which employers start paying NICs on employee earnings drops from £9,100 to £5,000.
On top of that, the National Minimum and Living Wage is increasing, adding even more pressure to wage bills. This brings extra costs that businesses can’t ignore.
Without careful consideration, these changes could derail even the best laid financial plans. However, it isn’t doom and gloom. Whilst conventional wisdom says small businesses should be battening down the hatches, the latest data paints a different story. Small businesses aren’t just surviving; they’re thriving and hiring. In fact, 54% of UK entrepreneurs plan to hire in 2025, defying expectations and doubling down on growth. The Intuit QuickBooks Small Business Index also shows that small businesses added 6,000 new jobs in February and March.
This isn’t just about surviving; it’s about building smarter. For small businesses looking to grow despite rising costs, there are several low cost, practical strategies that can help SMEs adapt, thrive and protect their bottom line.
- Claim the Higher Employment Allowance
Amid what appears to be a barrage of bad news, there is one silver lining – the Employment Allowance is increasing from £5,000 to £10,500.
This allowance effectively reduces your employer NIC bill, allowing all eligible employers to lower their annual NICs by up to £10,500, regardless of previous liabilities.
This increase can significantly offset the additional NIC cost you’ll be facing. If your NIC bill is under £100,000, make sure you’re claiming it. It’s simple to apply via HMRC’s payroll system, and it’s one of the easiest ways to manage the hike.
Furthermore, from April the UK Government has also removed the £100,000 eligibility threshold, meaning that certain employers paying more than £100,000 in Class 1 National Insurance liabilities can apply for Employment Allowance. If you’ve not claimed before, double check your eligibility and get it sorted before your next payroll run. You could end up saving thousands. - Use salary sacrifice schemes
Salary sacrifice schemes allow employees to exchange part of their salary for benefits such as pensions, electric vehicles, or cycle to work schemes. Their taxable salary drops, meaning reduced NIC and income tax bills for both parties.
Crucially, this is a tax-efficient way to offer appealing perks to your team without increasing payroll costs. Employees stay engaged with added benefits, while you save valuable money that can be redirected toward achieving business goals. With NIC rates increasing, every pound saved through salary sacrifice counts.
In order to effectively take advantage of this, review which benefits you could introduce or expand. Even small adjustments, like additional pension contributions, can cut costs while attracting staff looking for long-term rewards. - Review your workforce set-up
With the NIC threshold now lower, the reality is that more of your wage bill is now taxable. As such, now may be the time to consider the structure of your team.
Consider whether certain roles could be done on a freelance, job share or part time basis, or whether certain tasks could be outsourced. By carrying excess staff costs, you could be paying more NIC than you need to.
This isn’t about cutting jobs. It’s about making sure your payroll set-up is efficient, flexible and lean. Finding strategic alternatives to reducing headcount, can help you adapt effectively and responsibly. - Invest in automation and tech
The reality is that every employee added to your payroll now brings a higher NIC bill. However, technology’s exponential growth in capabilities offers huge possibilities in saving money.
Investing in automation or digital tools can cut down on repetitive, manual tasks. This reduces the need for additional hires, keeping your payroll lean whilst increasing the time available to be dedicated to higher value work.
Whether it’s cloud-based payroll and accounting tools like QuickBooks, or other systems that streamline admin, the right tech can improve efficiency and reduce operating costs.
Now is the time to review your operating processes. Identify the areas where automation could ease workload pressures, explore the technology at your fingertips and make a small investment that will yield both time and financial savings. - Offer tax-free perks instead of pay rises
In a similar vein to hiring new staff, pay rises increase your overall NIC bill. Alternatives like share schemes or private healthcare plans do not attract the same tax burden.
These perks can help reward and retain staff without inflating payroll costs. Like salary sacrifice schemes, they show employees you’re investing in them without sending your NIC liability soaring.
To explore this further, look at the perks available through HMRC approved schemes. Consider pension top ups, employee share schemes or offering wellness benefits. It’s a smarter way to give value and reward quality work whilst protecting your bottom line.
Proactivity is the key to success:
The National Insurance rise is undoubtedly a challenge, but it doesn’t need to derail your business. By claiming new allowances, revisiting new payroll strategies and using smart tools, you can take steps to protect your profits and invest in the future.
The key is to plan ahead and act early. New starts often bring new opportunities. By seeing April as a reset, SMEs are able to build healthy financial foundations that will set them in good stead moving forward. To avoid being caught out, don’t wait until costs bite, now is the time to future-proof your set-up and steer confidently into the year ahead.
