Nearly half (42%) of Scottish mid-market businesses are looking at salary sacrifice schemes as a means of mitigating the impact of Budget tax changes coming into force from April, a new survey has found.

BDO’s Economic Engine survey of 500 mid-market businesses found that while the use of salary sacrifice schemes was one of the most popular choices among employers seeking to mitigate the rise in employers’ National insurance Contributions (NIC), 46% said they would look to outsource or offshore work.

More two-fifths (44%) reported that they would look to reduce or scrap planned pay increases or bonuses, while 50% said they would hire more part-time or contract workers.

Overall, all respondents to BDO’s survey said they were planning to take at least one action in response to the imminent rise in employers’ NIC announced at the Budget.

Commenting on the survey findings, Steve Talbot, Head of Employment Tax at BDO in Scotland, said:

“The increases to employers’ National Insurance Contributions announced at the Budget and the accompanying drop in the threshold at which NIC applies to employee earnings came as a shock to many Scottish businesses. Unsurprisingly, the vast majority have been urgently exploring ways to mitigate this imminent jump in their costs.

“There is no silver bullet, but clearly salary sacrifice schemes for things like pensions,  Electric Vehicles or cycle to work schemes – which offer NIC savings to both employers and employees – are top of mind for employers.

“For those businesses not yet offering a pension salary sacrifice scheme, now would be a good time to start. Those already operating such a scheme may seek to encourage employees, many of whom reduced their pension contributions during the pandemic, to consider the longer-term benefits of raising their contribution levels.”

Paul Mooney, Director, Employment Tax at BDO in Scotland, commented: “There is also an education piece here for Scottish employers – particularly when it comes to helping employees earning close to the key earnings thresholds. For example, employers could help parents earning just above the £60K and £100K thresholds to understand that using salary sacrifice schemes could help them bring down their net adjusted income and retain entitlements to child benefit or free childcare.

“Employers are also increasing the use of salary sacrifice schemes for Electric Vehicles. The Benefit in Kind charge and NIC savings will depend on the model and its list price. However, with a low Benefit in Kind charge – 2% of the list price of the vehicle this year or 3% in 2025/26 – these schemes offer both employees and employers attractive savings.”

Talbot concluded: “Our survey also found that the Budget changes are also likely to result in some businesses looking at cutting fixed costs by outsourcing or offshoring work, switching to a part-time workers model and suppressing pay increases.

“However, Scottish businesses must resist the temptation of cutting corners. Any salary sacrifice schemes introduced must be watertight to avoid any risk of HMRC censure. Employers also need to pay particular attention to ensure that salary sacrifice arrangements don’t reduce an employee’s cash earnings below the National Minimum Wage as this could result in them being fined, named and shamed.”