New year, new costs, new balancing act

Nearly half of mid-market businesses are considering implementing salary sacrifice schemes in response to upcoming tax changes introduced in the recent Budget announcement, according to a survey conducted by accountancy firm BDO.

The survey, which encompassed 500 mid-market companies, revealed that 47% of these businesses view salary sacrifice as a potential strategy to offset the increased costs stemming from a rise in employers’ National Insurance Contributions (NICs) that will take effect in April.

The findings underscore a broader trend among employers seeking to navigate the financial implications of the new tax measures, with 44% of respondents indicating plans to outsource or offshore work as an alternative cost-saving measure. Additionally, 24% stated that they would consider reducing or eliminating planned pay increases or bonuses, while 21% noted intentions to cut back on hiring.

In total, a significant 95% of those surveyed acknowledged that they would take some action in reaction to the Budget changes. Caroline Harwood, Head of Employment Tax at BDO, remarked on the unexpected nature of the NIC increases and noted that many businesses are rapidly exploring ways to manage the financial impact.

Harwood highlighted salary sacrifice schemes which can provide both employers and employees with National Insurance savings, mentioning options related to pensions, private healthcare, electric vehicles, and cycle-to-work initiatives. For businesses not currently offering these schemes, she recommended that now could be a timely opportunity to start, particularly as many employees reduced their pension contributions during the pandemic.

Moreover, Harwood pointed out the potential benefits of these schemes for employees on higher earnings, specifically those near crucial income thresholds. By participating in salary sacrifice programmes, these workers might reduce their adjusted gross income, thus maintaining access to benefits such as child benefit and free childcare.

The survey results also suggested that the changes in the Budget may compel businesses to look for additional strategies to manage fixed costs. However, Harwood cautioned against hastily implemented changes, emphasising the importance of ensuring that any salary sacrifice schemes comply with HMRC regulations to avoid penalties. Employers must also be vigilant to ensure that participation in these schemes does not reduce an employee’s earnings below the National Minimum Wage, which could lead to serious repercussions.

As the deadline approaches for the new NIC rates, the choices made by mid-market businesses could shape their operational strategies and impact employee remuneration in the months to come.