Most UK businesses now face an increased cost burden with the rise in employers’ national insurance contributions (NICs). This is leaving many wondering how best to manage higher costs while sustaining growth.

Strategic financial planning, driving cost efficiencies and leveraging available tax allowances can help businesses adapt without compromising their staff retention or expansion plans.

What are the new rates?

From 6 April 2025, the employers’ NICs rate increased from 13.8% to 15%, while the earnings threshold (after which contributions start) dropped from £9,100 to £5,000.

Reviewing operational costs for efficiency

One of the most effective ways to offset higher NICs is to conduct a thorough review of operational expenses. Identifying inefficiencies and reducing unnecessary costs can also free up capital.

Assessing supply chain and procurement costs is a good starting point. Renegotiating contracts with suppliers, exploring alternative vendors and streamlining procurement processes can help to secure better rates and overall savings.

Energy efficiency is another potential area of focus to help reduce costs. Reviewing energy usage and switching to more cost-effective suppliers can significantly lower expenses over time. Similarly, businesses should periodically audit their use of digital tools, software licences and subscriptions to eliminate redundant or underutilised services that may be draining resources.

Preserving staff retention

To maintain performance and support growth plans, most businesses will want to preserve and enhance their workforce productivity. Investing in staff training, outsourcing, automation, and digital tools can all improve efficiency. This investment can also reduce the need for additional hires and the increased payroll costs they bring.

Another consideration is salary sacrifice schemes, which can reduce the NICs liability for both the employer and employee. Under these schemes, an employee gives up part of their salary in exchange for certain benefits, such as pension contributions or a low-emission/ electric car.

The value of reinvesting in staff development and wellbeing shouldn’t be underestimated. Prioritising employee training, wellbeing and other retention strategies can yield significant long-term benefits in productivity and efficiency. Examples here include additional paid time off or offering more flexible working hours.

Making the most of tax allowances

Taking full advantage of available allowances can help businesses reduce their overall tax liability, which in turn creates room to absorb the higher employment costs. Capital allowances enable businesses to invest in qualifying plant, machinery and business assets to offset taxable profits.

The annual investment allowance remains a valuable tool for businesses looking to invest in equipment while reducing their tax exposure. The employment allowance is another helpful consideration. Eligible businesses can now claim £10,500 per year (previously £5,000).

The eligibility threshold has also been removed as (previously) only employers with a total NICs liability below £100,000 in the prior year could claim the allowance. Learn more from the gov.uk website

Finally, don’t forget that research and development tax credits can be financially beneficial for businesses investing in innovation. The credits allow them to claim back a portion of their qualifying expenditure and reduce their overall tax burden.

Fulfilling your growth plans

Rather than scaling back operations, many businesses will want to continue to pursue their growth ambitions. Helpful approaches here might include:

• Considering a strategic restructuring of the business – for example, to be more tax-efficient.
• Running investment and cash-flow projections and planning for different scenarios to keep plans and timescales on track.
• Exploring government incentives, such as grants, tax reliefs and support, as these can provide a useful financial cushion.
• Seeking investment through private equity, venture capital or alternative lending sources may offer additional funds to help manage increasing staff costs and facilitate growth.

Looking ahead

Adjusting to higher employers’ NICs requires a proactive approach. By streamlining costs, leveraging tax efficiencies and exploring new financial arrangements, businesses may be able to mitigate the impact of increased employment costs, while positioning themselves and their teams for sustainable growth.

If you would like further help navigating the new employers’ NIC landscape, talk to your usual Shipleys contact.

There are also further insights at Moore Kingston Smith’s insights pages and in particular in:

• Managing the increase to employer national insurance contributions
• Capital allowances: a strategic tool for tax-efficiency and investment

Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered above.  If you would like advice or further information, please speak to your usual Shipleys contact.

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