How to avoid paying employers national insurance

Harrison Clayton January 2, 2023 19

Employers national insurance is a tax that employers in the United Kingdom have to pay on their employees’ earnings above a certain threshold. It is an important source of revenue for the government, but it can also be a significant cost for employers. However, there are legal ways for employers to minimize or reduce their national insurance liability.

One common method is through salary sacrifice. With this approach, employers provide certain benefits or perks to employees in exchange for a reduction in salary. By doing so, both the employee and the employer can save on national insurance contributions. For example, an employee may opt to receive a company car as part of their remuneration package instead of a higher salary. Since national insurance is calculated on earnings, and the value of the company car is not considered as earning, the employer can reduce their national insurance liability.

Another method is to hire independent contractors or freelancers instead of permanent employees. Independent contractors are responsible for paying their own national insurance contributions, so the employer does not have to contribute on their behalf. Contractors also have more flexible working arrangements and are not entitled to certain benefits such as sick pay or holiday pay, which can further reduce costs for employers.

Employers can also take advantage of the Employment Allowance. This is a government initiative that allows employers to claim a reduction in their national insurance liability. Currently, eligible employers can claim up to £4,000 off their annual national insurance bill. The Employment Allowance is aimed at small businesses and companies with low employers’ national insurance liability.

However, it is essential for employers to seek professional advice to ensure they are complying with current legislation and not engaging in any illegal tax avoidance schemes. Taking appropriate measures and using legal methods can help employers reduce their national insurance liability and save on costs without breaking the law.

Report of Committee on employers' liability insurance to thirteenth annual convention, National metal trades association, New York city, April 12 and 13, 1911

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Strategies to Avoid Employers National Insurance Payments

When setting up and running a business, it is important to be aware of the financial implications, including employers national insurance payments. These payments can be a significant expense, but there are strategies you can implement to avoid some of these payments. Here are a few strategies to consider:

1. Utilize the Employment Allowance: The Employment Allowance allows eligible businesses to reduce their annual employers national insurance bill by up to a certain amount. Currently, the allowance stands at £4,000, which means that you could potentially save on your employers national insurance payments.

2. Review Employment Contracts: Make sure to review the employment contracts for your workers. If some of your workers are self-employed contractors rather than employees, you may not need to pay employers national insurance contributions for them. However, be sure to carefully determine the employment status of each worker to ensure compliance with tax and employment laws.

3. Restructure Your Workforce: Consider restructuring your workforce and utilizing alternative work arrangements, such as freelancers or consultants. By engaging workers on a self-employed basis or through third-party agencies, you may be able to avoid employers national insurance payments. However, be aware of the legal implications and ensure compliance with employment laws.

Reduce Employee Wages Responsibly

When looking to avoid paying employers’ national insurance, it’s essential to approach the issue responsibly and ethically. Reducing employee wages can be one strategy to consider, but it’s crucial to handle it correctly and in compliance with legal and ethical standards. Here are some responsible steps to take when reducing employee wages:

Open Communication: Start by having open and transparent communication with your employees about the financial situation of the company. Explain the factors necessitating the decision to reduce wages and emphasize the temporary nature of the measure.
Collect Feedback: Encourage employees to share their concerns, questions, and suggestions regarding the wage reduction. Show empathy and assure them that their voices are heard and their input is valuable.
Create a Fair Plan: Develop a fair and equitable plan for reducing wages, ensuring consideration for factors like tenure, experience, and job responsibilities. Implementing a progressive reduction scale can help mitigate the impact on lower-paid employees.
Offer Additional Benefits: Consider providing additional non-wage benefits to help offset the wage reduction. This can include flexible working arrangements, increased training opportunities, or enhanced performance-based incentives.
Monitor Employee Well-being: Regularly assess the well-being and morale of your employees during the wage reduction period. Address any negative effects promptly and consider implementing employee support programs or resources as needed.