Top tax strategies for SMEs
Before President Trump’s game of tariff bingo kicked off, the top item of UK business news was the changes to Employers’ National Insurance rates. In his latest Insight, Tax partner Craig Coyle looks at tax strategies for SMEs that could mitigate against the increased cost of employing staff.
Changes to the rates of Employers’ National Insurance on 6 April 2025 have increased costs for businesses of all sizes that employ staff. They will, however, be felt acutely by the small and medium-sized enterprises (SMEs) that make up 99% of the British economy.
With cost of living pressures unlikely to ease soon, the issue is compounded for SMEs as salary expectations may continue to rise. On that basis, I will look at three methods to reward and retain staff without increasing salaries and incurring higher Employers’ National Insurance contributions (NICs).
Tax strategies for SMEs: EMI Share Options
Rather than raise salaries for key employees and pay the related increased costs of employment, they could be encouraged to remain engaged in and grow the company through equity incentives.
An Enterprise Management Incentives (EMI) option scheme allows certain employees to participate in a future sale of the business in a tax-efficient manner (their proceeds should qualify for Business Assets Disposal Relief meaning 18% tax on the first £1m) without any upfront tax costs. In this scenario, employees may be less likely to leave as they would be entitled to their portion of a future “pot of gold”.
Furthermore, by directly linking the value of their reward to business success, employers can encourage deeper commitment to growing overall profitability.
Interested in discussing an EMI option scheme?
Consilium regularly advises business owners and shareholders on how EMI option schemes and other share schemes can be designed and put in place to help meet your needs. Contact Craig Coyle or Paul Donnelly for an informal discussion.
Tax strategies for SMEs: Employer Pension contributions
Another way to remunerate employees without incurring the cost of additional NICs is to increase employer pension contributions, rather than increasing salary. The obvious downside is that the employee will not receive an immediate benefit. However, at certain brackets of income the opportunity to effectively invest the gross rather than a net amount, less a high effective rate of Income tax, could be attractive.
The employer could also commit to passing on or sharing the NIC savings with the employee, further enhancing the overall benefit.
Tax strategies for SMEs: Electric company cars
The taxable benefit-in-kind (BIK) associated with electric cars remains relatively low. Currently, the BIK is 3% and is forecast to rise by 1% for the next two years and then a further 2% in the following two years, such that the BIK will be 9% by 2029/30.
When employees are considering acquiring an electric vehicle personally, it will likely be more tax-efficient for the company to acquire the car and pay the BIK. The alternative is that the employee incurs Income Tax and NICs on their gross salary, and then uses their net pay for an electric vehicle.
Our Tax experts can provide illustrations of the above specific to your circumstances and would be delighted to discuss them with you. Contact Craig Coyle, Paul Donnelly or Duncan McKellar to learn more.
Tax advice dedicated to SMEs and business owners
Consilium Chartered Accountants are trusted Tax advisors to SMEs and business owners. We offer the technical expertise needed to handle any UK Tax compliance issue and the proactive insight to help clients plan for and mitigate, tax risks.
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Craig Coyle has been a qualified Chartered Accountant since 2001 and a Tax specialist for over 20 years. As a Tax Partner at Consilium Chartered Accountants, Craig advises business owners and entrepreneurs on all matters relating to Corporate Tax and Personal Tax. Craig is also a member of the Chartered Institute of Taxation.
