Employers’ predictions seem to be coming true as National Insurance Contributions (NICs) have skyrocketed to £28 billion, exceeding the Government’s original forecast of £23.9 billion.
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.
Put all these reforms together and employer costs have jumped from £116 billion to £143.9 billion in the last tax year.
With Income Tax and NICs making up over half of HMRC’s total tax take, it’s no surprise that employers want to know how to reduce their tax bill.
Salary sacrifice
Salary sacrifice schemes allow employees to exchange part of their salary for non-cash benefits, such as pensions or private healthcare.
This will allow employees to take home more of their salary, as they pay less tax.
It also reduces gross salary on which NICs are calculated and lowers NICs for employees and employers.
Pensions
Pension salary exchanges are one of the most effective ways to lower employer NIC liabilities.
Instead of making pension contributions after their earnings are taxed, employees will give up part of their salary for higher employer pension contributions.
This salary reduction happens before Income Tax and NICs are calculated and the employee and employer can benefit from reduced NIC liabilities.
Dividends
Directors might look into paying themselves in dividends to reduce their NIC tax bill and top up their income.
Dividends are not subject to NICs, making them a more tax-efficient way to extract income, in comparison to a salary alone.
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 can we help?
We know increased NIC bills are another thing added to the long list of rising costs and it can be difficult to know how you can manage them all.
Our professional team can help review your payroll costs, forecast your NIC liabilities and spot where adjustments like salary sacrifice can bring you some savings.
If you need further advice or support with your NIC bill, contact us.
