Taking a proactive response to National Insurance rate rises

In the wake of the autumn budget, how have businesses dealt with soaring labour costs? And what can be done to minimise and offset these costs while rewarding employees?

A panel at TheBusinessDesk.com’s roundtable examined how companies can implement cost reduction strategies and utilise opportunities such as hiring apprentices, taking advantage of tax relief schemes and embracing new technology.

The roundtable was chaired by TheBusinessDesk.com’s joint managing director Alex Turner and sponsored and hosted by Forvis Mazars.

When asked how they have reacted to the hike in national insurance contributions (NIC), Julie Roberts, financial director at Bradford chemicals company Christeyns, said: “The first thing we did was review the payment increase for all our staff and quickly established it was going to take £300,000 off the bottom line. We then reduced pay increases across the board to mitigate some of the cost. We wanted to be fair to our employees as it’s not their fault.

“We put together a good case and sent out a lot of information about the economic environment in the UK so that they understood why we’ve done it.  We’ve already done quite a lot of things like the pension salary sacrifice and are still pushing it hard to ease some of the pain.”

With NIC and National Minimum Wage (NMW) rising it may seem an impossible tax to minimise employment costs.

But Ian Goodwin, employment tax partner at Fortis Mazars, says there are several HMRC approved and compliant methods companies can do to mitigate costs.

He said: “Costs are rising and having a significant impact on companies. For example, without doing anything from April 2025, an employer with 50 employees each on an average annual salary of £35,000 will see annual employment costs rise by approximately £47,000 because of NIC increase alone.

“However, there is a lot companies can do to offset some of these costs. Salary sacrifice is the most obvious thing as it can boost net pay and lower employer costs by reducing the NIC payable by all parties.  Also bonus waivers into pensions can help reduce tax and NIC.”

The panel also discussed savings that can be made by reviewing company fleet policies and, for staff members who receive a car allowance, ensuring that NIC is reclaimed on business mileage for both the company and employee.

Ian said companies can dig deeper into costs by thinking more broadly such as employing apprentices. If an apprentice is under 25, employers do not have to pay NIC on their earnings.

Despite HMRC’s clampdown on a variety of tax relief schemes there are still several compliant tax relief schemes that companies can tap into.

Chloe Ellis, tax partner and head of UK tax advisory services at Fortis Mazars said: “HMRC has got a lot stricter in recent years and gone are the days of the various kinds of tax relief schemes such as film schemes. However, there are things companies can look at such as R&D tax credits. This relief has been around for years and, to be fair, HMRC has clamped down somewhat, but that doesn’t mean companies shouldn’t be maximizing the claims where they can.

“There’s also Patent Box relief which is something that’s still underutilised. If a business has patents, they can effectively bring corporation tax rate down to 10%, and the difference between 25% and 10% is significant. So, there are still things within the corporation tax regime that can minimise tax and effectively maximising shareholder value.”

In the wake of rising costs what have businesses done to mitigate costs and increase efficiencies?

Stephen Dale is the managing director of Hill Cross Group. The North Yorkshire furniture company made the decision to axe its manufacturing operations in an innovative project which saw the managers of each department takeover the operation and run it as their own business.

He said: “We are based on a farm with multiple buildings, and we gave each manufacturing operation the opportunity take it over and run it as their own company. It was a move that saw staff numbers reduce by 60%.

“There was a concern about quality. However, because it is now their own business, quality has improved. It’s their baby and they want to protect it.

“Manufacturing was a headache for us and hitting the margins. The move has worked tremendously well. Output has also improved, and we don’t have the overheads of 60 people. We’ve got a trusted supply chain, and while the companies can take on work from other customers, we make sure we give them enough to keep them busy.”

Justin Balfour, financial controller at Huddersfield-based Mac’s Truck Sales, joined the family-run firm around 10 months ago and part of his new role was to look at costs and drive forward efficiencies.

He said: “A big issue we had was overtime. We had people on the shop floor who were working 50 to 55 hours a week and we were paying them a premium to work long hours. It was like ‘hey go and work at Mac’s you’ll be guaranteed 50 hours a week’.

“We had a good look and this and found that these guys didn’t need to work all these hours. By cutting overtime, we’ve saved between £8,000 and £10,000 a week. Over the year, that’s around £300,000 and £500,000 on our bottom line.

“By cutting the overtime and reducing stock, we’ve got the business a bit leaner but we’re still more than meeting customer demand.

“In terms of the employees, we’ve found that the guys who are now doing 42 hours a week are happy with it.  They are getting a decent wage; we pay above minimum wage and they’re seeing a bit more of daylight. So, it has worked out quite well.”

The roundtable attendees also revealed that they are looking at technology to help improve productivity and offset some costs

Julie said: “We are taking a real close look at technology to bring down costs and making sure that we can grow our business without necessarily adding to our headcount. Using AI and other tools will help us do that.”

Pauline Davidson, outsourcing partner at Fortis Mazars, added: “There are businesses that are still doing accounts manually even though there are some excellent financial products around. If a business hasn’t got OCR technology to read their invoices or bank feeds, then they’re doing something wrong. Then there is real time reporting which is critical and it’s amazing the number of businesses that need a new system, technology is paramount to improve efficiencies and reduce costs.”

While it is important for businesses to look at all available complaint schemes, Ian stresses the need to keep on top of them.

Ian said: “I’ve seen organisations implement salary sacrifice schemes and not revisited them. For example, when new people have joined or transferred across through TUPE, they haven’t been enrolled in the scheme.

“Companies also overlook what’s gone on the payroll. Businesses don’t need to pay NIC for apprentices under the age of 25 but some companies are not following that through on the payroll. It is things like that to look out for and keep on top of, particularly in the current economic environment.”