Changes to Employer NICs – How Your Business Can Adapt

Changes to Employer NICs – How Your Business Can Adapt for the 2025/26 Tax Year

Year End Tax Planning for Businesses

As the 5th of April approaches, now is the perfect time to ensure your business finances are organised. Businesses should take advantage of the run-up to the end of the tax year to make the most of available tax reliefs and planning opportunities.

Below, we focus on some of the key changes brought forward in the Autumn Budget and offer insight into how businesses can adapt.

Changes to Employer National Insurance Rules

Lower Salary Threshold for Employer NICs

In the 2024 Autumn Budget, the Government introduced significant changes to employer National Insurance contributions (NICs), set to take effect from 6 April 2025. One of the key changes is a reduction in the threshold at which employers start paying secondary NICs, dropping from £9,100 to £5,000 per year. This means employers will begin making contributions at a much lower earnings level.

On the other hand, HMRC has now increased the Employers Allowance to £10,000 from £5,000 from 6^th April 2025.

Contribution Rates for Class 1 NICs Rise by 1.2 Percent

In addition to the reduction to the salary threshold, from 6^th April the secondary Class 1 NICs rate will increase from 13.8% to 15%. This rise also affects Class 1A NICs on benefits in kind and Class 1B NICs on PAYE Settlement Agreements, which will now incur a 15% charge.

Salary Sacrifice as a Cost-Saving Strategy

Although many tax advantages of salary sacrifice arrangements have phased out in recent years, certain benefits, like pension contributions, still provide a tax-efficient option. With employer NICs costs rising, salary sacrifice schemes can provide businesses with an effective way to manage remuneration packages and reduce overall NIC liabilities. Employers should review their compensation structures to explore potential savings and mitigate the impact of these changes.

Optimising Profit Extraction for Director-Shareholders

Extracting Profits via Bonuses

Taking profits as a bonus has its advantages, however, the action can also carry tax implications. Bonuses are subject to Income Tax and National Insurance Contributions for the director-shareholder, as well as employer NICs for the company. However, bonuses are deductible expenses for Corporation Tax purposes, reducing taxable profits or even creating a loss that can be carried forward or offset.

The timing of a bonus payment plays a crucial role in determining when it gets taxed. Depending on when you declare and pay the bonus, you might be able to defer taxation to a later year or bring it forward into the current tax year.

Profit Extraction Through Pension Contributions

Employer pension contributions offer a highly tax-efficient way to extract profits. When a company contributes to a director’s personal pension, it benefits from Corporation Tax relief. Additionally, it avoids employer NICs, while the director receives the contribution free of Income Tax and NICs. With the absence of any NIC charges, profit extraction through pension contributions becomes increasingly more advantageous when considering the upcoming changes.

Tax Efficient Business Motoring

With rising costs and changing tax rules, planning for tax-efficient business motoring is more important than ever. The 2024 Autumn Budget outlined the taxation of double cab pick-ups (DCPUs), such as the Toyota Hilux and Nissan Navara.

From April 2025, HMRC will assess a vehicle’s ‘primary suitability’ at manufacture to determine whether it qualifies as a car or goods vehicle, with most DCPUs expected to be classified as cars. However, transitional rules allow businesses to retain the current tax treatment if a qualifying DCPU is purchased, leased, or ordered before April 2025.

Beyond vehicle classification, controlling benefit in kind (BIK) costs is crucial, especially with employer NICs rising to 15% from April 2025. Company cars used privately attract BIK charges, making low-emission vehicles an attractive option. The tax system remains heavily weighted in favour of electric and low-emission vehicles, with BIK rates at 2% for zero-emission cars in 2024/25, rising gradually to 9% by 2029/30. These gradual rises are considerably lower than the maximum of 39% charged for petrol and diesel cars.

Proactive Tax Planning for Your Business

Year-end tax planning is a crucial opportunity for businesses to strengthen its position for the year ahead. Not only can effective tax planning significantly reduces your business’s tax liabilities, it can also act to improve your overall business finances.

Need some advice as you business adapts to changes to Employer NICs for the 2025/26 Tax Year? Get in touch today for expert tax planning advice tailored to your business. Our expert team can advise on tailored tax planning and accounting support to ensure your business maximises tax efficiencies while staying compliant with HMRC requirements.