Newswire

Employers are facing growing uncertainty over the future of salary sacrifice pension schemes following the Government’s decision to introduce a £2,000 annual cap on National Insurance (NI) relief for pension contributions made through salary sacrifice.

Although the cap will not take effect until April 2029, research suggests businesses are already reassessing whether these arrangements remain viable.

Why are businesses reassessing their use of salary sacrifice pensions

A new study by the Standard Life Centre for the Future of Retirement found that 39 per cent of employers offering salary or bonus sacrifice schemes are now less likely to continue providing them once the cap is introduced.

More significantly, 11 per cent have already decided to withdraw their schemes altogether.

The proposed cap is expected to affect 3.3 million employees, with more than 300,000 UK companies currently offering salary sacrifice pensions.

While pension contributions will remain exempt from Income Tax, any amount sacrificed above £2,000 will be subject to both employee and employer NI Contributions (NICs), increasing payroll costs.

Is this change affecting all businesses the same?

No. Small and mid-sized employers appear particularly exposed, with almost half (49 per cent) of businesses with 10 – 49 employees saying the cap would make them less likely to offer salary sacrifice schemes in future.

Employers who go beyond the minimum auto-enrolment contribution or match higher employee contributions may find the increased NICs difficult to absorb.

Illustrative figures from Standard Life show that an employee earning £50,000 and sacrificing £4,000 would incur £160 in extra employee NICs, while the employer NICs would increase by £300. At higher salary levels, the employer’s exposure rises further.

Will all businesses follow suit?

While the Treasury estimates the reform will save £4.7 billion annually in tax relief, concerns remain about the broader impact on pension saving.

Industry commentators warn that restricting salary sacrifice could undermine efforts to tackle under-saving for retirement, particularly at a time when many employees rely on workplace schemes to build long-term financial security.

If you are unsure about which direction to take, there is still time to understand your options.

The current deadline in 2029 gives businesses an opportunity to model the financial impact and consider alternative ways to support employee savings while managing their own employment costs.

We are still awaiting further information about the implementation of these new reforms, so now is a sensible time for businesses to review their pension arrangements and prepare employees for the changes to come.

If you need guidance on your payroll and benefits scheme, please get in touch with our team to help you plan for the upcoming changes.

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.

Rising costs seem to be coming at UK businesses from all directions, resulting in many difficult financial decisions needing to be made.

New research by the Liquidation Centre found that some employers are opting for job cuts to manage these expenses and 315,605 jobs have already been flagged for redundancy this year.

Times are tough right now for many businesses, but redundancies aren’t the only way to ease the pressure of these expenses.

Building greater resilience can become your biggest competitive advantage and help you avoid making decisions that could do more harm than good for your business.

Review your day-to-day costs

The most resilient businesses we see are the ones that know their operations and costs inside out.

You need to be clear on where your time and money are being spent and where any potential inefficiencies or unnecessary costs can be cut.

It could be that something as small as automating admin tasks or tightening internal processes could ease some of the pressure.

Renegotiating supplier contracts, reducing overheads or outsourcing functions can also help cut back time and money that could be spent more productively elsewhere.

Budget for the future

While getting a handle on your current costs is vital, you also need to be ready for the months and years ahead.

Forecasting ongoing costs and modelling the impact any increase may have on your margins can show if your business will cope with upcoming expenses or need to make some changes.

We are living in uncertain times, so it is important that these estimates have a substantial buffer to allow for further unexpected twists and turns.

Cloud-based accounting and real-time reporting can help to give you up-to-date information on your performance and allow you to make more informed decisions.

Let us help protect your business

The most resilient businesses are planning ahead and seeking expert advice to prepare for rising costs.

Our team can advise you on processes to help improve your cash flow, such as building a cash flow reserve and forecasting the impact of potential cost increases.

We can help protect your margins and allow your business to keep on growing.

For further advice or support on building resilience, get in touch today.

For sole traders, self-employed individuals and landlords with gross incomes exceeding £50,000 from self-employment or property, you are now mandated to abide by Making Tax Digital (MTD) for Income Tax regulations.

Applied from 6 April 2026, these new responsibilities require those affected to provide quarterly updates of their income and expenses to HMRC.

The first date you need to mark in your calendar for quarterly update reporting in the 2026/27 tax year is 7 August 2026.

What do you need to provide by 7 August?

For this first submission, you will need to provide a summary of your income and allowable business expenses for the period 6 April to 5 July 2026.

This should include:

• All sales or income received between 6 April and 5 July
• A breakdown of your business expenses by category, such as travel, office costs, software, professional fees and other allowable costs
• Records for any property income and related expenses
• Any corrections to figures already entered in your software during the period

If your income has fallen, even if it is nil during the current period, you will still need to submit an update provided you earned £50,000 or more in the 2024/25 tax year.

The difference between MTD for VAT and for Income Tax is that the quarterly update for Income Tax overwrites the previous submission.

If you are not sure what information you need to provide, you can contact our team, who would be happy to advise you.

How to submit your quarterly MTD update

The update must be sent using HMRC-recognised MTD-compatible software, either by you or an agent on your behalf.

This could be bookkeeping software such as Xero, QuickBooks, Sage Accounting or FreeAgent or a spreadsheet linked to HMRC-compliant bridging software.

Our team can help you find and onboard the software you feel most comfortable using.

If you are obligated to report your income under this first phase of MTD, making the switch sooner rather than later means you can get comfortable with the new process and avoid last‑minute stress before 7 August.

Speak to our team for help preparing for your first MTD quarterly update.

If you have been one of the lucky ones to secure a pay rise this year, be mindful that the High‑Income Child Benefit Charge (HICBC) does not crash the party.

How does HICBC work?

The HICBC can kick in if either you or your partner earns more than £60,000 a year and Child Benefit is still being claimed.

Once you cross this threshold, HMRC will start to recover some of the HICBC.

It does not matter which of you claims the Child Benefit, as it will always be the higher earner who is charged.

How much do you have to pay back?

The amount you need to pay back increases alongside your income. A one per cent clawback rate is applied to every £200 of adjusted net income above the threshold.

For example, if you have an annual income of £63,000, you will repay 15 per cent of the Child Benefit you have claimed.

Once income reaches £80,000, the full amount will need to be paid back via the HICBC.

How is HICBC paid?

Last summer, HMRC introduced the option for families to report their Child Benefit and settle the HICBC through their PAYE tax code.

However, the previous methods of opting out of Child Benefit payments or paying the HICBC through Self Assessment remain available if you prefer to use them.

If you already file a Self Assessment return, you will still have to report the HICBC on these returns.

Should you opt out of Child Benefit?

If you receive Child Benefit, it is worth reviewing your position as soon as your income changes, rather than waiting until the end of the tax year.

Even when the HICBC cancels out your Child Benefit, you or your partner still get the perks of National Insurance credits.

These credits can help protect entitlement to the State Pension, so cancelling the claim without advice may not always be the best route, especially if the person receiving Child Benefit does not make regular National Insurance Contributions (NICs).

Speak to us if your latest pay rise makes you subject to the HICBC.

There was a time when SMEs (Small and Medium-sized Enterprises) relied on their main bank for all of their finance options.

Recent economic pressures are leading to more cash flow challenges for SMEs and the old approach may no longer be sufficient.

Greater financial awareness is causing more SMEs to explore asset and invoice financing, with search enquiries for the terms rising by 26 per cent and 19 per cent respectively.

These options must be well understood to be used effectively.

What are asset and invoice financing?

Asset and invoice financing allow SMEs to enhance working capital by utilising existing assets rather than relying on traditional bank loans.

Asset financing will see a loan secured against tangible assets like equipment, property or stock.

Invoice financing allows a business to secure a loan based on the money it is due to receive from clients or customers before it has been paid.

What are the benefits of asset and invoice financing?

Given their increase in popularity, many SMEs have discovered a distinct benefit to asset and invoice financing that sets them apart from traditional bank loans.

Both are seen as effective ways of unlocking additional working capital, given that they are generally faster to approve than other financing options.

This is due to them being based on the current, upcoming and potential profitability of a business rather than just its existing financial state.

For businesses struggling to maintain cash flow through standard business practices or traditional financing, the swift injection of funds can be useful for investing in growth or clearing liabilities.

How can SMEs manage the risks of asset and invoice financing?

The flexibility that gives these options merit also carries a significant risk.

If the financing is not properly managed, repayments can be due before the invoices are paid in full, or the assets valued for the finance may need to be sold to pay them off.

Both of these instances significantly weaken the position of a business and may see it face financial difficulty.

No financing option is truly without risk, so seeking professional support is vital.

Our team can help you understand the right financing for your business and support you with the forecasting and budgeting required to fulfil your obligations.

Get in touch with our team for help in maintaining your cash flow.