National Insurance Changes 2025 – Why salary sacrifice is essential for SMB businesses

The recent National Insurance Changes announced in the 2024 Autumn Budget will have major implications for small businesses across the UK.

Starting from April 2025, these updates will significantly increase the amount businesses pay in National Insurance contributions.

For small businesses already working with tight margins, adapting quickly is crucial.

The good news? Salary sacrifice offers a smart, straightforward solution to manage these rising costs effectively.

What are the upcoming National Insurance changes?

The National Insurance Changes that come into effect from April 2025 are significant:

• Employer National Insurance contributions will increase from the current rate of 13.8% to 15%.
• The earnings threshold at which employers start paying NI contributions will decrease from £9,100 to just £5,000 per employee.

These two adjustments combined represent one of the largest hikes in payroll taxes in recent years, projected to generate approximately £25 billion annually.

This extra revenue will be used to fund essential public services and stabilise the UK economy. But what does this mean for your small business?

Starting from April 2025, updates will significantly increase the amount businesses pay in National Insurance contributions.  For small businesses already working with tight margins, adapting quickly is crucial. Image: Unsplash

How will National Insurance changes affect your business?

For most small businesses, these National Insurance Changes mean higher payroll expenses.

For example, an employer will now pay an additional £770 annually per minimum wage employee and around £900 extra per employee earning a median salary.

Although the Employment Allowance, which benefits small businesses, will double from £5,250 to £10,500, larger SMEs will still feel the pinch.

To stay competitive, your business will need to actively manage these rising costs without sacrificing employee benefits or compensation.

How salary sacrifice helps you navigate National Insurance changes

Salary sacrifice is a highly effective method for mitigating the impact of these National Insurance.

Changes. Simply put, salary sacrifice (also called salary exchange) allows employees to voluntarily give up part of their pre-tax earnings, typically redirecting the money into their
pension pot.

This simple change has two main benefits:

1. Reduces Employer Costs: Because the sacrificed portion of salary is exempt from NI contributions, you instantly cut down the payroll expenses associated with these National Insurance Changes.
    
2. Boosts Employee Benefits: Employees also benefit directly because their reduced taxable salary means they pay less NI and income tax. This extra saving can either be kept as additional take-home pay or invested into their pensions, helping them build a stronger financial future.

The upcoming National Insurance Changes don’t just affect businesses; employees are impacted too. Image: Unsplash

10 things you need to know about the 2025 National Insurance Changes

1. Employer NI contributions increase from 13.8% to 15%.
2. Earnings threshold for paying NI lowers from £9,100 to £5,000.
3. Small businesses face significant payroll cost increases.
4. Employees on minimum wage will cost employers roughly £770 extra annually.
5. Median salary employees will cost about £900 more per year.
6. The Employment Allowance for small businesses doubles to £10,500.
7. National Insurance Changes aim to generate around £25 billion annually.
8. Salary sacrifice reduces NI contributions for both employers and employees.
9. It helps businesses stay competitive by controlling payroll expenses.
10. Higher earners particularly benefit from salary sacrifice by avoiding higher tax bands.

How salary sacrifice supports employee financial wellbeing amid National Insurance changes

The upcoming National Insurance Changes don’t just affect businesses; employees are impacted too.

Salary sacrifice offers employees significant advantages, including lower personal National Insurance contributions.

Employees can choose to use these savings to increase their take-home pay or boost pension contributions—both valuable options at a time when living costs are rising.

Additionally, salary sacrifice can help higher earners avoid shifting into higher tax brackets, thus preserving their net income despite increased National Insurance rates.

What you need to do now to stay ahead of National Insurance changes?

1. Analyse Payroll Costs: Calculate the exact impact of the National Insurance changes on your business.
2. Introduce Salary Sacrifice: Discuss salary sacrifice options with your employees and highlight benefits clearly.
3. Check Your Pension Provider: Ensure your current provider supports salary sacrifice efficiently; if not, switch.
4. Seek Payroll Expert Advice: Consult experts like Swift Payroll Processing to simplify setup and compliance.
5. Update Your Payroll System: Confirm that your payroll software can handle salary sacrifice and new NI rates.
6. Communicate Clearly: Keep employees informed about the changes, how salary sacrifice works, and its benefits.
7. Act Early: Implement changes now to stay ahead of April 2025 deadlines and save money sooner.

Swift Payroll Processing: Your partner through National Insurance changes

Navigating these substantial National Insurance Changes doesn’t have to be complicated.

Swift Payroll Processing is dedicated to helping small businesses adjust to the 2025 NI updates smoothly.

We specialise in straightforward salary sacrifice solutions, ensuring your payroll management is quick, efficient, and fully compliant with HMRC regulations.

Our innovative payroll and pension management tools integrate seamlessly with your existing systems, eliminating administrative headaches and cutting processing time significantly.

Swift Payroll Processing is ready to help your business navigate the complexities of salary sacrifice and manage payroll expenses effectively amid the upcoming National Insurance Changes. Image: Unsplash

Why Swift Payroll Processing is the right choice:

• Quick and easy setup of salary sacrifice pension contributions.
• Full compliance with new NI rules and HMRC standards.
• Reduced administrative workload and errors.
• Expert guidance and ongoing support.
• Optimised pension schemes tailored specifically for small businesses.

Prepare today for tomorrow’s National Insurance changes

With April 2025 approaching, now is the best time to adopt salary sacrifice arrangements. Avoid costly delays—act proactively and safeguard your business finances today.

Swift Payroll Processing is ready to help your business navigate the complexities of salary sacrifice and manage payroll expenses effectively amid the upcoming National Insurance Changes.

Contact us today...