Millions of people will need to make higher National Insurance contributions to fund changes to social care from next April, but salary sacrifice could help keep tax bills down.


Earlier this month, the government announced reforms to the social care system that will see employees, including working adults over State Pension age, pay an additional 1.25% in National Insurance contributions. Next tax year, employers must pay 15.05% National Insurance Contributions compared to 13.8% this year. Employees must pay a 13.25% main rate rather than 12%.

The changes will add £130 a year to annual National Insurance costs for someone on a £20,000 annual salary and £255 to bills for someone earning £30,000 a year. The aim of the increase is to ensure families don’t get hit by care bills they can’t pay and from October 2023, the maximum anyone will have to pay for social care is £86,000 over your lifetime.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “For those people whose loved ones need care after October 2023, the cap on care costs could make an enormous difference. The pressure that caring puts on families can’t be underestimated, and the relief of knowing the state will eventually step in will help protect them from untold stress. However, it comes at a cost – one that looks set to push people who are Just About Managing over the precipice into Not Managing At All.”

How salary sacrifice could help

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Salary sacrifice, as the name suggests, is when you agree to give up part of your salary in exchange for a benefit from your employer, for example, contributions into your pension scheme.

This can have advantages for both employees and employers, as it reduces your salary, which means you pay less in tax and National Insurance Contributions (NICs), and your employer also won’t pay Employers’ NICs on the portion of salary you sacrifice.

Becky O’Connor, head of pensions and savings at DIY pension platform interactive investor, said: “Many employers now offer salary sacrifice, saving both the employee and employer on their National Insurance bill, which may feel like a more pressing concern after the introduction of the new Health and Social Care levy from next April.”

NFU Mutual has crunched the numbers to show the effect salary sacrifice can have:

Example of a basic rate taxpayer on £30,000 in 2022/23

No salary sacrifice: An employer must spend £1,777 to pay their employee £1,000 as they pay 15.05% (£177) in employer’s national insurance. The employee then pays 20% tax and 13.25% NICs on the £1,000 (£332.50), reducing their net pay to £667.50.

With salary sacrifice: If an employee earning £30,000 ‘sacrificed’ £1,000 of their salary in return for a £1,000 employer pension contribution, this would save the employer £177 in national insurance. The employee would benefit from an extra £1,000 in their pension at a cost to them of £667.50.

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Sean McCann, Chartered Financial Planner at NFU Mutual, said: “The hike in National Insurance makes salary sacrifice pensions even more attractive for both employees and employers. Employees do not pay income tax or NICs on employer pension contributions and those employers using salary sacrifice will also be making bigger savings from April next year.”


However, salary sacrifice can have other financial implications, so it’s important to weigh up the pros and cons carefully before taking this route. For example, if you’re thinking about applying for a mortgage or re-mortgaging, salary sacrifice would reduce your salary which might affect the amount you’re able to borrow. It could also impact on the amount of maternity pay you may be entitled to, and other benefits you receive. It’s therefore a good idea to seek professional financial advice to make sure it’s the right option for you.