Mitigating the 2025/26 increase in NI contributions

As you're probably aware the Autumn 2024 budget included an increase in National Insurance contributions effective from 6 April 2025. This will obviously impact how you extract profits from your company. By Mitigating the 2025/26 increase in NI contributions, you can reduce the financial impact of these changes.

Planning to Mitigate 2025/26 NI Increase

Reviewing your combination of salary and dividends

Many director/shareholders take a low salary and supplement this with dividends to be tax effective. However, the upcoming NIC increase means reviewing this approach could be beneficial. A balanced mix of salary and dividends can help reduce overall tax exposure for the following reasons.

  • Dividends are not subject to NICs but are taxed at dividend tax rates.
  • The Dividend Allowance remains low at £1,000, making tax planning essential.
  • Reviewing your salary structure now may help optimise tax efficiency.

Claiming the Increased £10,000 Employment Allowance

If you operate as a single-director company, you cannot claim this allowance. However, there are ways to make your company eligible.

  • Employing a family member, such as a spouse or adult child, enables your company to claim the allowance.
  • Paying them a salary allows your company to reduce its corporation tax liability.

However, employing a family member must be done legitimately, ensuring that they have a genuine role in your business and their salary is reasonable for the work performed.

Maximising Pension Contributions

Getting your company to pay pension contributions remains one of the most tax-efficient ways to extract profits from your business. This is because pension contributions are a tax-deductible expense for your company and exempt from national insurance. Furthermore they also help you to build a retirement fund in a tax-efficient manner.

  • Pension contributions can reduce the tax liability of your company while securing personal financial stability.
  • Depending on circumstances, you may be able to access pension savings in the short to medium term.
  • The government may impose future restrictions on pension tax relief, so early planning is advisable.

Tax-Efficient Benefits & Expenses paid by your company

Certain fringe benefits and reimbursed expenses can reduce your company's taxable profits while also providing financial advantages. Further clarification is provided below:

  • Trivial benefits and staff entertaining for example remain tax-free benefits in kind and deductible for corporation tax purposes.
  • Any business-related expenses for example business travel should always be paid directly by the company out of its pre-tax income. As opposed to post-tax income you draw from the company.
  • By managing your company's expense policy effectively this will ensure efficient tax and NI treatment and reduce your overall financial burden.

Timing of Profit Extraction

Since NICs will rise from April 2025, taking action now could save you money. Accelerating certain payments before the new tax year may be beneficial.

  • Bonuses or dividends paid before April 2025 may incur lower NIC rates.
  • Proper timing ensures tax-efficient withdrawals and minimises unnecessary costs.
  • Reviewing extraction plans with an accountant can ensure maximum tax efficiency.

Summary

We've discussed in broad outline some suggestions for mitigating the 2025/26 increase in NI contributions. Obviously each company has unique circumstances, so reviewing your own specific situation is essential. By being proactive now this will ensure you are able to lessen the impact of the increase in NI contributions from 2025/26.

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

Alternatively, please feel free to complete our Business Questionnaire here.

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