From a business and employee benefits point of view, the Autumn Budget brings together some significant changes and looking beyond the headlines, some opportunities to balance the costs of running and growing your business.
Key points
- Large increase for employers in NI costs from April 2025. The main rate of class 1 employer national insurance contribution (NIC) will be increased from 13.8% to 15% from 6 April 2025
- The secondary threshold at which employer NICs are payable will be reduced from £9,100 to £5,000
For now, the opportunities for tax and NI savings for both employer and employee through Salary Exchange remain, making it a serious consideration for business owners, to help balance the increases in NI costs next year.
Salary exchange results in employees’ salaries reducing for non-cash benefits such as pensions, electric vehicles, bicycles etc. Where less salary is paid but, as a result, also less employer NI & employee NI.
As this example illustrates,
- An employee with a salary of £50,000 with the increased Employer NI from April 2025 will result in a cost of £1,105 per annum for the employer.
- The same salary of £50,000 with a 5% employee contribution getting paid by Salary Exchange results in a reduction in Employer NI of £ 375 per annum.
- With this scenario, the increased employer NI costs are reduced by over 30%, the employee reduces their NI costs by £200pa and the employee effectively gets full tax relief automatically at 42% compared to only 20%, before using Salary Exchange. This option can provide significant benefits to both Employer and Employee and can be beneficial whether supporting a few employees or several thousand.
Electric Vehicles (EV) remain another favourable consideration.
For example,
- for an EV lease cost of £750pm, the approximate net cost to the employee would be around £400 depending upon the benefit-in-kind rate on the car.
- The Employer NI saving post-April 2025 would be £1,350 per annum.
- Using the example of a £50,000 salary this would more than mitigate the increase in the employer NI costs for April 2025.
Starting in April 2025, the first-year VED rate (road tax for Electric Vehicles) will see a gradual increase. The differential between EVs and conventional vehicles will widen in the initial year, making it cheaper for first-time EV buyers than those purchasing petrol or diesel cars. This will be accounted for in the lease costs of EV schemes.
The retention of low BiK tax rates for electric company cars (Company EV schemes) is another positive takeaway from the Budget. Currently, EVs enjoy a BiK rate much lower than that of petrol and diesel vehicles, which can reach up to 37% depending on emissions. For EVs, the BiK rate will continue to rise by just one percentage point each year until 2027/28. This stability in BiK rates provides predictability for employees and employers, so it’s easier for companies to integrate EVs into their fleets.
All salary exchange benefits can work as a stand-alone or as part of flexible benefits schemes which promote salary exchange benefits – there’s never been a better time to review your employee benefits offering. Read our free guides here or get in touch with our team for an initial consultation.