We are more than halfway through the current tax year, and by now the pressure on councils’ budgets, because of the increase to employer’s National Insurance Contributions (NICs), will be hard to ignore.

Although National Government provided £515m to help with the increased costs, this is still £122m less than the sector predicted it would need to meet the additional costs for directly employed employees. Also,  this shortfall did not take into account the effect on fees for indirectly engaged workers, whose pay is in scope of the Off-Payroll Working rules (OPW).

However, what really stood out when details of the compensation package were published was that Parish and Town Councils did not receive anything, even though their additional employer costs have been estimated at around £10 million because of the increase in employer NICs.

The Office for Budget Responsibility (OBR) issued commentary on the Public Sector Finances, 21 October*, in which it showed, using HMRC’s data, that an additional £2.3bn was received between April and September this year, due mainly because of the increase in NICs. However, much of the additional receipts have been absorbed by higher estimated borrowing by local authorities and public corporations. One step forward and one step back?

The issue is not just that the rate of employer NICs went up from 13.8% to 15%, but also, and probably more importantly, it is the reduction to the earnings threshold for employers, which went from £9,100 to £5,000 a year. (This is the threshold for earnings, after which employers start to pay NICs.)

The extra 1.2% employers’ NIC rate is the type of increase that can usually be absorbed over time, but the same cannot be said of the reduction to the employers’ NIC threshold.

The effect of the combination of these two changes is to create a new employer’s cost per employee of £615 a year (£9,100 – £5,000 * 15%). This equates to 2.6% of a full-time employee’s salary, earning the current National Minimum Wage rate (£12.21 per hour for 21-year-olds and older). For many employees, that charge is equivalent to what their pay rise might have been.

The Government did sweeten the pill for many employers by increasing the Employment Allowance to £10,500 and removing the eligibility condition that meant that only employers with an NIC bill of less than £100,000 could claim the allowance. However, public authorities (such as local authorities, town councils and parish councils) are not eligible to claim the allowance unless they have charitable status.

So, what can employers do to mitigate the NIC increase?

One solution might be to introduce a salary sacrifice scheme, as this is an efficient way to reduce NIC costs. Some schemes also save tax, such as qualifying childcare schemes; cycle to work schemes; holiday purchase and pension schemes, and company car schemes for electric vehicles with CO2 emissions of less than 75g/km.

They can also enhance remuneration and reward packages for employees and help with recruitment and retention. It is worth pointing out, though, that these schemes do not work if they reduce an employee’s pay to below the National Minimum Wage rates, so caution is needed, particularly if an employee is in more than one scheme.

Another way employers can save on employer’s NIC is by employing under-21-year-olds, apprentices under 25 years old and veterans. There are conditions to be met for each of these categories of employees, so it is worth checking to see what this would mean for your council.

Apprenticeship levy funds should not be overlooked as a way to keep employment costs down. Only large employers with a pay bill of more than £3m pay the Apprenticeship Levy, and this is done through their payroll each month. The rate is 0.5% of the pay bill over £3m, less an annual allowance of £15,000. Employers in England have a 10% top-up added to their funds by the Government as well. (If employers are associated with one another, they may be deemed ‘large’ if their aggregated pay bills total more than £3m.)

Employers can access their apprenticeship levy funds to spend on apprenticeship training costs. Funds should be used within 24 months of being credited to their account; otherwise, they will expire. If an employer will not be using all of their funds, they can choose to transfer up to 50% of the levy funds collected in the previous tax year to another employer. So even if an employer does not pay the Apprenticeship Levy itself, it can still benefit if another employer is willing to transfer some of their funds.

These are just a few ideas to save on employment costs, but there may be other opportunities depending on your circumstances.

One of the best things about Club membership with PSTAX is our Employment Tax and VAT Helplines as this is when we get the chance to get to know our clients and learn how their organisation works, when they email us with a query. This gives us the chance to think about cost-saving ideas as well as answering questions on technical matters.

The predicted shortfall in the public finances is eye-watering, anywhere between £20bn and £50bn, depending on where you get your news, and it appears obvious that taxes will have to be increased. In just a couple of weeks, we will know where this revenue will come from, but at the moment, no one knows for sure, and Rachel Reeves is giving nothing away.

In her unusual ‘scene-setter speech’ on 4 November, no details of tax rises or anything else material were revealed, but a great deal of context was provided to prepare us for this year’s Budget.

In an interview on Radio 5 (10 November), the Chancellor said that there is still work to do in the run-up to the budget, so perhaps she could be persuaded to change the eligibility rules for the Employment Allowance, so that Parish and Town Councils can claim.

In the meantime, the National Association of Local Councils is lobbying ministers to compensate parish and town councils on a par with other local authorities, and it will be worth keeping an eye out for any developments.

* Commentary on the Public Sector Finances September 2025 release

**Public sector finances, UK – Office for National Statistics