NI increases: why tax-efficient remuneration is more important than ever

National Insurance increases are rarely good news for growing businesses, but the latest changes may have an unexpected silver lining: they create a strong case for reviewing how you reward your team, and whether your current approach is really working in your favour.

While some may point to the increased employer NIC cost of running unapproved share schemes, this misses the bigger picture. Most companies already lean towards tax-efficient arrangements when they qualify. The real challenge lies elsewhere: in rising fixed costs, especially salaries, which are now even more expensive due to higher NIC rates.

For startups and SMEs, this is where the pressure will be felt. With rising fixed costs like salaries and employer NICs putting a strain on growth and recruitment. In this environment, tax-efficient remuneration becomes a powerful tool to attract and retain talent without adding to payroll pressure. Is your business making the most of the reliefs and schemes available?

The problem with rising fixed costs

Higher employer NICs mean that every pound spent on cash pay now costs even more.

For startups operating with tight budgets, and scale-ups balancing growth with sustainability, these increases hit hard. They don’t just impact the bottom line, they slow down hiring plans, reduce competitiveness in the talent market, and stifle growth at a time when agility matters most.

Why tax-efficient remuneration is key

Rather than stretching already tight salary budgets, equity can offer a compelling alternative, particularly when structured through a tax-advantaged scheme. Share schemes don’t just preserve cash flow. If structured correctly, they can also:

• Reduce or eliminate employer and employee NIC liabilities
• Offer employees a clear stake in the business’s success
• Improve retention without adding recurring costs to payroll
• Align long-term incentives with company performance

Samantha Lenox, who leads our Employee Share Schemes team, explains why EMI and other tax-efficient schemes are becoming essential tools for smart remuneration:

Employee share schemes like EMI, CSOP, SAYE, and SIP continue to offer attractive income tax and NIC advantages. EMI remains a strong choice for qualifying businesses, allowing them to offer share options with no NIC exposure, and CGT treatment on gains. Even where EMI isn’t an option, growth shares or outright share awards can provide access to capital gains tax instead of income tax and NIC, helping keep tax costs manageable.

Our guide to EMI share options breaks down the key benefits and eligibility requirements. For businesses not eligible for EMI, Company Share Option Plans may offer a great alternative.

Don't overlook employment law

While tax efficiency is important, it’s just as crucial to get the legal framework right. Equity-based rewards can raise several employment law considerations.

Option agreements and scheme rules must clearly set out how shares or options are granted, and what happens when an employee leaves. If you're adjusting pay structures, such as reducing salary in favour of equity, staff should be properly consulted and any changes formally and timely documented to avoid breaching contractual terms and to ensure the change is effectively structured for tax purposes. It's also essential to ensure fair access to schemes, as excluding part-time employees, those on family leave, or others without clear justification could risk discrimination claims. Finally, leaver provisions must be clear and consistent with employment contracts to help prevent disputes.

In short, the most effective remuneration strategies are those that align tax efficiency with legal compliance.

Things to keep in mind

For businesses looking to stay competitive, this is a good time to:

• Review your current remuneration strategy especially the mix of salary and equity
• Model the true cost of rising NICs on salaries and unapproved schemes
• Explore switching to or adopting tax-advantaged share schemes like EMI and CSOP
• Seek advice to ensure compliance and maximise tax efficiency under the new rules

Our specialist team can help you make the most of tax-efficient share schemes. Whether you're setting up an EMI scheme for the first time, reviewing your current plans, or need advice on the tax implications of your existing arrangements, we’ll guide you through the process and ensure your scheme works for both your business and your employees.