Salary Sacrifice & National Insurance: Smarter Ways to Cut Costs

I Hate Numbers: Simplifying Tax and Accounting

Salary sacrifice and National Insurance changes have created significant challenges for employers across the UK. However, every challenge presents an opportunity. In this episode of the I Hate Numbers podcast, we explain how to turn rising employment costs into smarter savings. We break down the April 2025 National Insurance changes, explain how salary sacrifice works, and outline the legal steps every business must follow. With practical examples and tax-saving insights, this episode helps you keep costs down while maintaining valuable employee benefits.

Main Topics & Discussion

Understanding the April 2025 National Insurance Changes

From 6 April 2025, employer National Insurance rates rose from 13.8% to 15%, while the threshold dropped from £9,100 to £5,000. Although the employer’s NI allowance increased from £5,000 to £10,500, many businesses still face higher contributions per employee. Class 1B contributions also climbed to 15%, further raising costs.

What Salary Sacrifice Actually Means

Salary sacrifice is a voluntary agreement where employees exchange part of their gross pay for non-cash benefits such as pension contributions or cycle-to-work schemes. This arrangement reduces taxable pay, which means both the employer and employee pay less in National Insurance while maintaining the same benefit value.

How Salary Sacrifice Works in Practice

For example, without salary sacrifice, an employee pays £500 into a pension from their net salary. With salary sacrifice, their gross salary reduces by £500, and that amount goes directly into the pension. Both the employee and employer enjoy National Insurance savings as a result.

The Financial Benefits Are Clear

Employers could save up to £900 per employee each year. Employees also benefit from reduced NI contributions. When multiplied across a workforce, these savings create a substantial financial impact without lowering the actual pension contribution value.

Eligible Benefits for Salary Sacrifice

Even with recent restrictions, several benefits still qualify. These include pension contributions, low-emission company vehicles, workplace nurseries, and bicycles with safety gear. Each of these options can create meaningful tax efficiencies when structured correctly.

Legal Requirements You Must Follow

To stay compliant, update employment contracts, ensure genuine salary reductions, and never backdate arrangements. Salary sacrifice schemes must be set up before payroll runs. Getting this wrong can trigger HMRC scrutiny and financial penalties.

Why Act Sooner Rather Than Later

The earlier a business introduces salary sacrifice, the more it can save. Delaying means additional months of paying higher National Insurance. Taking action early helps preserve profits and supports smarter financial planning for the future.

Links Mentioned in This Episode

• 🎥 Free Recorded Webinar on Salary Sacrifice

Episode Timecodes

• [00:00:00] – Introduction
• [00:01:09] – Understanding the April 2025 National Insurance Changes
• [00:03:12] – What Salary Sacrifice Actually Means
• [00:05:21] – How Salary Sacrifice Works in Practice
• [00:06:36] – The Financial Benefits Are Clear
• [00:07:53] – Eligible Benefits for Salary Sacrifice
• [00:08:19] – Legal Requirements You Must Follow
• [00:10:16] – Why Act Sooner Rather Than Later
• [00:10:54] – Final Thoughts & Call to Action

Host & Show Info

Host Name: Mahmood Reza About the Host: Mahmood is an accountant, business finance coach, and founder of I Hate Numbers. With decades of experience helping businesses improve their numbers, he’s on a mission to simplify finance and empower entrepreneurs to save tax and time. Podcast Website: https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/

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