The forthcoming rise in employer National Insurance Contributions (NICs), followed by the introduction of the Mandatory Payrolling of Benefits (PBiKs) regime in April 2026, will affect the cost and administration of employment for many businesses. Human Capital Director, Liam Condron, explores the challenges and opportunities that these changes create for insurance intermediaries.
What’s happening?
Many of us will be familiar with the changes that are coming over the next year or so. However, to summarise, from 6 April 2025:
- The Employer NIC rate rises from 13.8% to 15%
- The Secondary Threshold where employers start paying NICs decreases from £9,100 to £5,000 pa per employee
- The Employment Allowance available to all employers (regardless of total NIC bill) increases from £5,000 to £10,500.
Then, effective 6 April 2026, employers will be required to report and process Income Tax and Class 1A NICs on most BiKs through payroll in real-time (accommodation and beneficial loans excluded).
How will it affect my broking business?
The combined effect of the NIC measures will lead to greater payroll costs for most employers (with only some net benefitting from the Employment Allowance changes). Companies with high headcount and / or where personnel costs constitute a significant portion of operational expenditure are set to be most impacted.
Many businesses have highlighted difficulties absorbing these additional costs, suggesting price adjustments, hiring freezes, or even workforce reductions may be required. Notably, the increased cost of employment is disproportionately greater for lower paid employees.
For broking firms operating on tight margins, additional costs are likely to put strain on financial resources, creating uncertainty regarding investment in growth initiatives or technology upgrades. Given the competitive nature of the insurance market, passing on increased costs can be difficult and so identifying opportunities to mitigate rising payroll costs will be key.
The new Mandatory Payrolling of Benefits regime will require payroll systems changes to accommodate real-time taxation of BiKs. Whilst many brokers outsource payroll operations to third parties (who will inevitably be working to update their software), compliance with the new rules ultimately remains the obligation of employers.
Where a suite of employee benefits is offered, this transition may involve significant administrative effort beyond payroll operation – such as updating internal processes, working with benefit providers to obtain real-time data, and reviewing employee documentation. Based on other large scale administrative changes, proactive steps in advance of the go-live date will be pivotal.
Under the current P11D process, PAYE codes are amended by HMRC to account for taxable BiK values, with income tax collected in the subsequent tax year via payroll. In the first year of mandatory payrolling, employees may see an impact to their take-home pay as both current and past year BiKs will essentially be taxed in the same period. Clear employee communication will be key to ensure expectations are managed.
What can I do?
In this period of change, an opportunity arises for employers to revisit employee reward arrangements. With careful consideration, insurance intermediaries may mitigate some of the increased NIC costs, whilst enhancing employee packages to improve staff attraction and retention.
Salary sacrifice
Transitioning certain benefits such as workplace pension schemes or implementing new benefits like electric vehicles – into effective salary sacrifice arrangements (where employees agree to contractually reduce their salary in exchange for a non-cash benefit), can potentially result in NIC savings for both employers and employees.
Salary sacrifice is a long-established concept which, if implemented correctly with clear documentation, is typically accepted by HMRC as effective tax planning.
Pension salary sacrifice
Broadly this involves a reduction in taxable / NICable salary in exchange for an equivalent employer pension contribution which is not chargeable to Income Tax or employee / employer NICs.
Despite the salary reduction, employee net pay increases as a result of the employee NIC saving. Income Tax relief is also realised in real-time, so higher / additional rate taxpayers don’t need to make pension relief claims via a Tax Return.
Given existing pension auto-enrolment requirements, most employees are already used to making workplace pension contributions. This is key given the value of any NIC savings realised should in theory increase with each employee enrolled.
Electric vehicle salary sacrifice
Current company car tax legislation still provides significant tax efficiencies for qualifying electric vehicles, especially where they are offered via a salary sacrifice arrangement.
Given vehicle lease terms are typically 2-4 years, electric vehicles can also prove to be an effective staff retention tool.
Bonus waivers
Employers may also consider allowing employees to forego a cash bonus in exchange for an equivalent employer pension contribution. Like pension salary sacrifice, this is tax and NIC efficient as employer pension contributions are not chargeable to income tax or NICs (unlike the cash bonus that is foregone).
It is important that appropriate documentation is in place to ensure any waiver is actioned before entitlement to the cash bonus arises. Failure to do this can lead to an ineffective waiver and possible retrospective challenge from HMRC.
It’s time to act
The upcoming changes undoubtedly present challenges for insurance intermediaries. However, by providing an incentive for decisive action now to review existing benefit arrangements, they may also present an opportunity to mitigate increasing costs, ensure compliance, and provide a competitive employment edge in a shifting economic landscape.
This article was originally published in Insurance Age. For more information, please contact Liam Condron.
