February Newsletter

Welcome to your February Newsletter!

As we embrace the chilly days of February, we’re pleased to bring you another month of valuable news and insights. With Spring just around the corner, now is the ideal time to start planning your financial and personal goals for the year ahead.

Whether you’re managing your finances, planning for the upcoming tax season, or refining your business strategies, we’re here to help you every step of the way. We hope you find this month’s updates helpful.

Employer’s National Insurance Bills

In the recent Autumn Budget, Chancellor Rachel Reeves announced an increase in the Employers’ National Insurance rate, starting from April 2025. As a result, many businesses will face higher employment costs, making it more expensive to retain and pay their staff. Unsurprisingly, this change has raised concerns among many UK business owners, particularly small and medium-sized enterprises (SMEs) operating on tighter budgets.

How is Employer’s National Insurance Changing?

Currently, employers pay National Insurance Contributions (NIC) at a rate of 13.8% on employee earnings above £175 a week. From April 2025, this rate will increase to 15% and the threshold at which employers begin paying NICs will reduce from £9,100 a year to £5,000. These changes will significantly increase employment costs for businesses.

However, smaller businesses may be less affected by this change due to an increase in Employment Allowance (a government programme that helps smaller businesses reduce their NI costs). From 6 April 2025, the allowance will more than double, allowing eligible employers to reduce their NICs by £10,500, compared to the current amount of £5,000. Additionally, the government will remove the £100,000 threshold, enabling all businesses with Employer NI bills to benefit

Salary Sacrifice Schemes

One potential solution for employers looking to reduce their NI costs – whilst also benefiting their employees – is salary sacrifice. These schemes allow employees to exchange a portion of their gross salary for non-cash benefits, such as pension contributions, childcare vouchers, or cycle-to-work schemes. By lowering employees’ taxable earnings, salary sacrifice reduces the amount on which both employee and employer NICs are calculated, leading to potential savings for both parties.

Factors to Consider Before Implementing a Salary Sacrifice Scheme

Employers should carefully consider several key factors before offering a salary sacrifice scheme:

• National Minimum Wage Compliance – Ensure that employees’ earnings do not fall below the legal minimum wage, which increased in the Autumn Budget. According to HMRC regulations, any salary sacrifice arrangement must not reduce an employee’s hourly pay below the statutory minimum, regardless of benefits received in exchange.
• Maternity and Paternity Pay – Statutory maternity and paternity payments are calculated based on an employee’s average weekly earnings during a specific period, known as the ‘relevant period.’ Salary sacrifice schemes which reduce an employee’s gross taxable earnings can impact the calculation of these payments. By lowering the employee’s average weekly earnings, the salary sacrifice could potentially reduce the amount of statutory maternity or paternity pay they are entitled to. Additionally, if the reduced salary falls below the NI lower earnings limit, the employee may become ineligible for statutory maternity or paternity pay entirely.
• Student Loan Repayments – Student loan repayments are typically calculated based on an employee’s gross taxable salary. When participating in a salary sacrifice scheme, the reduction in gross income means that student loan repayments will be calculated on the lower salary, potentially resulting in a decrease in the monthly repayment amount. Whilst this can lead to an immediate increase in take-home pay, it may also have long-term consequences, as the employee may take longer to repay the loan in full and interest may accrue over time. This is particularly relevant for high earners or those who are close to repaying their loan in full.

In Summary

Offering a salary sacrifice scheme can be a strategic way for employers to reduce their National Insurance Contributions. In addition to the financial savings for both the employer and employee, these schemes can also boost employee satisfaction by offering valuable benefits, such as increased pension contributions or support with childcare costs.

However, it’s essential for employers to approach the implementation of such schemes with great care. Clear communication is key to ensuring that employees understand how salary sacrifice will affect their take-home pay and employers must also ensure full compliance with HMRC regulations, to avoid any potential issues.

For the most up to date rates and thresholds, you can refer to the latest official guidance to ensure you remain fully compliant with HMRC. Sara Maxfield, our Payroll Manager, is also here to help if you need further clarification – sara.maxfield@cvag.co.uk

R&D Tax Credit Claims

HMRC recently lost two cases against Small and Medium-Sized Enterprises (SMEs), where it was argued that the businesses were not eligible for R&D Tax Credits due to their R&D activities being subsidised by their clients. In both cases a tribunal ruled in favour of the taxpayers, concluding that the R&D was conducted independently by the SMEs, without the direction or financial support of their clients.

HMRC have stated that they will not be appealing these decisions and plan to release further guidance in February 2025. Stay tuned!

How We Can Help

At Clear Vision, we’re always eager to guide and assist our clients – how ever you need us to support you through your journey as a business owner, we’re here for you!

If you have any specific questions about any matters within this month’s newsletter and how they may affect you or your business, do please get in touch with us.