South West firms look to salary sacrifice schemes ahead of budget tax changes

Six in 10 mid-market businesses in the South West are looking at salary sacrifice schemes as a means of mitigating the impact of budget tax changes arriving this April, a new survey has found.

BDO’s Economic Engine survey of 500 mid-market businesses found that while the use of salary sacrifice schemes was the most popular choice among employers seeking to mitigate the rise in employers’ national insurance contributions (NIC), 50 per cent said they’d look to outsource or offshore work.

Nearly a quarter reported that they would look to reduce or scrap planned pay increases or bonuses, while 47 per cent said they’d hire more part-time or contract workers.

Overall, all respondents said they were planning to take at least one action in response to the imminent rise in employers’ NIC announced in the budget.

Caroline Harwood, head of employment tax at BDO in the South West, said: “The increases to employers’ NIC announced at the Budget and the accompanying drop in the threshold at which NIC applies to employee earnings came as a shock to many South West businesses.

“Unsurprisingly, the vast majority have been urgently exploring ways to mitigate this imminent jump in their costs.

“There’s no silver bullet, but clearly salary sacrifice schemes for things like pensions, electric vehicles or cycle-to-work schemes – which offer NIC savings to both employers and employees – are top of mind for employers.

“For those businesses not yet offering a pension salary sacrifice scheme, now would be a good time to start.

“Those already operating such a scheme may seek to encourage employees, many of whom reduced their pension contributions during the pandemic, to consider the longer-term benefits of raising their contribution levels.”

Caroline Jones, director, employment tax at BDO in the South West, added: “There’s also an education piece here for employers – particularly when it comes to helping employees earning close to the key earnings thresholds.

“For example, employers could help parents earning just above the £60,000 and £100,000 thresholds to understand that using salary sacrifice schemes could help them bring down their net adjusted income and retain entitlements to child benefit or free childcare.

“Employers are also increasing the use of salary sacrifice schemes for electric vehicles.

“The benefit in kind charge and NIC savings will depend on the model and its list price.

“However, with a low benefit in kind charge – two per cent of the list price of the vehicle this year or three per cent in 2025/26 – these schemes offer both employees and employers attractive savings.”

Harwood concluded: “South West businesses must resist the temptation of cutting corners.

“Any salary sacrifice schemes introduced must be watertight to avoid any risk of HMRC censure.

“Regional employers also need to pay particular attention to ensure that salary sacrifice arrangements don’t reduce an employee’s cash earnings below the national minimum wage as this could result in them being fined, named and shamed.”