As the Chancellor prepares to deliver the Spring Statement, a new survey highlights how small and medium-sized enterprises (SMEs) plan to manage the upcoming increase in National Insurance Contributions (NIC) from April 2025.
Conducted for Purbeck Insurance Services, the research finds that 35 percent of SME decision-makers intend to raise prices to offset the additional costs, while 39 percent plan to introduce staff benefits to limit higher wage bills.
The findings suggest businesses are exploring a range of strategies to mitigate the financial impact. While price increases are the most common response, many SMEs are turning to employee development and alternative forms of remuneration. Nearly a third (31 percent) plan to invest in training to maximise the potential of existing employees, while 21 percent will offer more flexible benefits instead of salary increases.
A further 18 percent expect to introduce salary sacrifice schemes, which could include pension contributions, cycle-to-work schemes, childcare vouchers, additional annual leave and health-related benefits.
Despite these measures, the survey also reveals concerns about workforce reductions. One in five SMEs (19 percent) plan to cut staff, while 13 percent of business leaders say they will reduce their own pay. The impact of the NIC increase could extend beyond immediate cost-cutting, with smaller firms potentially struggling to compete for talent against larger businesses that have greater financial flexibility.
SMEs Consider Enhanced Employment Allowance
The research highlights how some businesses intend to use government support to manage the rising costs. Just over one in five SMEs (21 percent) plan to take advantage of the Enhanced Employment Allowance, which is set to increase from £5,000 to £10,500 per year. To qualify, businesses must have had employers’ Class 1 National Insurance liabilities of less than £100,000 in the previous tax year.
Todd Davison, Managing Director of Purbeck Insurance Services, notes that many SMEs are looking at ways to maximise the skills of their current workforce rather than increasing headcount. He also warns of potential challenges for smaller businesses competing for skilled workers.
“There is little doubt the NIC hike is making businesses think hard about where they can save on their salary bills. This may have unintended consequences for those SMEs competing for skills against larger businesses with deeper pockets as well as those that offer overtime pay and bonuses. It all adds to the strain on finances that we see first-hand at Purbeck Insurance Services. Ultimately if the NIC hike impacts cashflow we could see even more businesses going to the wall.”
As the NIC increase takes effect, SME leaders will need to balance financial pressures with efforts to retain and motivate employees, while also remaining competitive in a challenging economic environment.
