Supporting health & social care providers to navigate challenges in 2025

The health and social care sector has faced a series of unique challenges in recent years, many of which are ongoing with no easy solution. The 2024 Autumn Budget introduced certain measures that has caused concern in the sector, most notably the changes to employment costs. Below we have set out some considerations for providers to think about on the upcoming changes, together with a wider look at some of the additional challenges that may be faced and support that can be provided by BDO’s Health & Social Care experts.

Autumn 2024 Budget changes

From April 2025, employer’s NIC will increase from 13.8% to 15% for most employees while for all employees the NIC starting threshold is being reduced from £9,100pa per employee to £5,000pa.

To help mitigate these cost increases, employers not currently operating their employee pension contributions under a salary sacrifice arrangement should think again. Under such arrangements, employees agree to reduce their salary by an amount equal to the pension contribution they currently make. Doing this reduces their pay liable to employee and employer NIC – effectively giving the employee an increase in net pay while reducing employer costs. Employers liable to the Apprenticeship Levy will also save levy contributions on the sacrificed salary. See SMART Pensions – how they work - BDO

Salary sacrifice can also deliver NIC-efficient solutions for certain environmentally friendly travel options (good for your ESG credentials) such as electric vehicles and cycles to work. These arrangements can save employees tax and NIC compared to purchasing the vehicle/cycle from their net pay while also reducing employer NIC and Apprenticeship Levy costs. See Electric Vehicles (EVs) as a salary sacrifice - BDO

Remember, whatever salary is sacrificed by an employee, their post sacrifice salary must remain above the NMW. This, combined with above inflation increases in those rates from April 2025 – another employer cost pressure – means NMW compliance is now a hot topic, see NMW Guide 2025.

Adjusting hiring strategies to target employees aged under 21, apprentices under 25 or forces veterans could also save costs – employer NIC for such employees is 0% on salaries up to £50,270pa. Obviously there are some conditions attached – e.g. apprentices must be on a recognised apprenticeship training course, but savings may be available.

As funds available for pay rises will be limited in 2025, care homes could consider providing tax-exempt benefits if possible, e.g. free meals from the onsite kitchen for residents or access to online shopping discounts.

Although engaging off-payroll workers, e.g. self-employed carers, or outsourcing the employment to umbrella companies may be attractive, this creates risks. The rules around who would be deemed an employee for tax purposes (and who operates PAYE/NIC where employment is deemed) have tightened in recent years and scrutiny and regulation of umbrella companies is increasing.

Finally, a word of warning: history shows that every increase in tax costs sees an increase in marketed “schemes” to reduce them. HMRC watches these closely, and where such “schemes” fail or are fraudulent, there are significant risks for employers using them - both financially and in reputational damage.

BDO’s tax experts can help you understand what mitigation steps are best suited to the unique needs of your business – to discuss your options, please contact Christine Francis or Kerry Bailey.

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Further challenges and support for providers

Increases to wage and associated tax costs are not the only financial concerns that health and social care providers will have. Over a prolonged period, the sector has not only faced the wide sweeping impacts of the COVID-19 pandemic, but also a rise in demand (due to an ageingpopulation and increase in health conditions), staffing shortages, increases to day-to-day trading costs, restrictions on funding and regulatory oversight concerns.

These factors are likely to continue to pose problems for care providers in the foreseeable future. Uncertainty over the wider economy will continue to impact the cost of doing business. Changes to the health and care worker visa scheme in 2024 saw a sharp decline in the number of applications, reducing the recruitment options available to providers to meet staffing requirements. In turn, the ADASS Autumn Survey 2024 estimated that 44% of local councils are likely to apply for Emergency Financial Support within the next two years which could reduce the ability to uplift fee income from these sources.

These challenges all impact a provider’s ability to operate effectively and support the vulnerable service users that they care for. Below are some of the key challenges we predict health and social care providers may face in 2025 and how BDO’s Health & Social Care experts can support them navigate these.

Challenges in 2025	How BDO can help
Cashflow margins will become further constrained due to ongoing increases in day-to-day costs coupled with restrictions on the ability to uplift fee income.	We can provide an independent review or assurance on forecasts and work with providers to ensure they are robust. Sensitivity analysis will also allow providers to understand the impact of potential changes and help drive decision-making during times of change.
Increased focus on sustainability and Environmental, Social and Governance (ESG) provisions.	We conduct independent reviews to assess providers sustainability and identify ESG risks and opportunities. Advice is tailored to reflect the sector, geographical and service offering specifics of the provider focussing on protecting value in their business and assisting to prepare for future requirements.
Requirements for additional capital spending, including investment in technology to comply with changing regulatory requirements.	We can assist providers in undertaking a review of their investment needs and assessing the funding, refinancing or restructuring options that are available.
Implementation of cost cutting measures to mitigate signs of financial stress.	We support providers in understanding the core elements of their business and how they can improve on them, identifying areas where changes can have maximum effect. We undertake financial performance assessments and benchmarking analysis to assist providers in their decision-making processes.
Increased pressure from creditors and suppliers.	We can assist providers in understanding their key liabilities and restructuring debts to improve liquidity and maintain operations. Support in communications and negotiations with creditors, including HMRC and time to pay arrangements, ensures optimum solutions are identified to manage settlement of debts.

Each provider will be unique in its business and operations and therefore the challenges faced will also specific. If you would like to discuss your own position in more detail, please contact Christine Francis or Kerry Bailey.

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