27 March 2025
There were few surprises for businesses in Chancellor Rachel Reeves’ statement. The main areas of focus were around changes to welfare, defence and housing. Growth estimation for the UK economy is down from 2% to 1% for 2025, but figures have been upgraded for the next four years – 1.9% in 2026, 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029.
Inflation is forecast to average 3.2% this year – up from the 2.6% figure previously forecast – with the longer term forecast being a targeted rate of 2% by 2027.
April 2025 changes
Although the Spring statement didn’t bring any meaningful new changes for businesses, several changes are now coming into force on the back of the Autumn 2024 statement:
- Increased Contribution Rate: The rate of employer National Insurance Contributions (NICs) will rise by 1.2%, increasing from 13.8% to 15%.
- Lower Secondary Threshold: The threshold at which employers start paying NICs will decrease from £9,100 to £5,000 per year.
- Enhanced Employment Allowance: To support smaller businesses, the Employment Allowance will increase from £5,000 to £10,500 annually. Additionally, the previous restriction that disallowed employers with a secondary Class 1 NICs liability exceeding £100,000 in the prior tax year from claiming this allowance will be removed, making more businesses eligible.
So how can your business mitigate some of these cost increases?
Salary Sacrifice (also known as Salary Exchange) is when an employee agrees to reduce their gross salary in exchange for non-cash benefits. Since both employer and employee NIC contributions are calculated based on earnings after any salary sacrifice reductions, this lowers the amount subject to NIC.
Pensions contributions in particular can be an efficient way to make NIC savings – for every £1,000 an employee sacrifices, your business saves £150 (up from £138 under the old 13.8% rate). Employees benefit too, saving income tax and NIC contributions, and may also benefit by reducing their marginal tax rate.
Employers can use salary sacrifice for other tax and NIC benefits, such as cycle to work or electric vehicle leasing. You can also reduce your NIC costs with strategies such as holiday allowance purchase.
Whilst not directly a cost saving, you may want to consider your current committed spend. From an employee benefit perspective, we are seeing an increase in employers redirecting some of their Learning & Development budget towards financial education. The same can be said for a segment of the spend committed to a cost of living increase. This provides an opportunity for employees to save money, rather than simply handing the money over as a pay rise.
Contact us to find out more about how we can support your business and your employees.
