As UK’s April’s employer National Insurance (NI) hike approaches, accountants are in a unique position to help small and medium-sized businesses (SMBs) manage the financial impact advises Pauline Green, Head of Product Programs and Compliance at Intuit QuickBooks
Many businesses may struggle to navigate these regulatory changes—especially when those changes hit their bottom line and right now, business owners are facing a double hit: an increase in employer NI contributions alongside the rising national minimum and living wage.
The reality is, many SMBs are feeling the pressure. We know that 88.3% of small business owners worry about making accounting mistakes, and 27.9% are very concerned about errors in financial reporting, payroll, and tax preparation and these fears aren’t unfounded. Getting payroll and compliance wrong can lead to serious financial consequences. However, by engaging professional accounting support, SMBs can mitigate many of these risks and reduce the financial impact.
So, how can accountants help clients navigate this shift? Understanding the potential impact of these changes and taking proactive steps to mitigate financial strain will be essential in ensuring businesses can manage increased costs without disrupting operations.
Understanding the NI Increase and Its Impact
The increase in employer NI contributions, alongside the reduction in the secondary threshold, means businesses will have to pay more per employee, raising payroll costs. Some industries and workforce structures will be impacted more than others. Businesses that employ apprentices will face an 18% wage increase, while those relying on workers aged between 18 and 20 will see their wage bill rise by 16.3%. Even businesses with an older workforce will experience a 6.7% increase in payroll costs.
For industries such as retail and construction, where younger workers and apprentices make up a large portion of the workforce, the financial impact could be more severe. In retail alone, 13% of employees are aged 16 to 24, which means a significant number of businesses in this sector may need to find ways to offset rising costs while still remaining competitive.
How the NI Increase Will Affect Hiring and Workforce Development
With increased payroll costs, businesses may reconsider their hiring plans. Some may panic and decide to freeze recruitment or scale back their hiring efforts altogether, placing additional pressure on existing employees. Salary structures may need to be reassessed, as some businesses have wage bands tied to the National Minimum Wage (NMW). If businesses choose to increase salaries across the board to maintain fairness, this will further increase costs.
For businesses struggling to get a holistic view of these rising costs, they may resort to limiting pay raises and bonuses. However, this could have an adverse effect on employee morale and retention, making it harder to keep top talent engaged. Other business initiatives, such as sustainability programs and capital investment projects, may also be put on hold while business owners prioritise maintaining financial stability.
Despite these challenges, there is relief available. The increase in Employment Allowance from £5,000 to £10,500, for example, will help offset some of the costs associated with the employer NI increase.
Steps Accountants Can Take to Help Clients Prepare
- Financial forecasting and payroll reviews: One of the most effective ways accountants can help businesses prepare for the NI increase is by conducting detailed financial forecasting and payroll reviews. Payroll is usually the biggest expense for any business, and predicting the financial impact of NI and NMW increases will allow business owners to make informed decisions. Financial modeling helps businesses understand how much they will need to set aside for payroll, while scenario planning can provide insights into different ways to manage costs without compromising operations.
- Understand the options: Another area where accountants can provide valuable guidance is in navigating salary sacrifice schemes and pensions. Salary sacrifice can be an effective way to reduce employer NI contributions, but not all pension schemes support this approach. Businesses will need expert guidance to understand whether this is an option for them and how they can implement it effectively. Pensions are another critical consideration, and accountants should help businesses explore the different tax treatments. Relief at source pension schemes, for example, may be beneficial for lower-paid employees earning between £10,000 and £12,570. Understanding auto-enrollment thresholds can also help businesses optimize pension contributions while remaining compliant.
- Support growth: Beyond payroll, accountants can help clients explore additional financial relief options, such as grants and tax incentives. Some businesses may qualify for government-backed funding or tax reliefs that could ease the burden of rising payroll costs. Identifying these opportunities and ensuring businesses apply for them in time could make a significant difference in their financial outlook. According to our recent Accounting for the SMB Economy report, 73.1% of businesses say that working with an accountant has strengthened their financial reporting, and has helped them secure business loans and government support.
- Hiring Strategies: Workforce planning will also be a key consideration for many businesses. With rising costs, some may need to reconsider their staffing strategies. For businesses that cannot afford to hire new employees, alternative staffing arrangements—such as part-time roles, flexible working hours, or outsourcing certain tasks—could be really beneficial. Part time staff in particular have a significantly lower tax dependency if they sit below certain thresholds. Perhaps open roles could be split into job shares to keep costs down. These sort of suggestions could help clients maintain efficiency while keeping costs under control.
The Role of Accountants in Times of Change
The employer NI, living and minimum wage increases present a significant financial challenge for SMBs, who may make kneejerk reactions without having all the information they need to hand. By leveraging payroll data and the right financial guidance, there is no doubt that businesses can navigate these changes more successfully.
Now is the perfect time for accountants to step in and provide proactive, strategic advice. By helping with payroll forecasting, salary structuring, financial modelling, and hiring strategies, accountants can help businesses stay ahead of these changes and thrive despite rising costs.
