Employment tax changes offer motor retailers strategic opportunity

For many motor retailers, employee remuneration is already their single largest expense. The increases in employer’s National Insurance Contributions (NICs) and the National Minimum Wage (NMW) taking effect in April 2025 will have an impact across the sector. 

There is no way to avoid the increase in employer’s NIC. However, this change presents an opportunity to rethink how the additional cost is managed. Some employers may offset the increase through reduced bonuses, smaller pay rises or headcount cuts. However, it’s important to consider the broader impact on staff both in terms of financial and perceived value. A strategic approach should balance cost control with long-term value and workforce engagement.

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National Minimum Wage compliance and changes for Motor retailers

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Getting NMW compliance wrong can be both financially and reputationally damaging with penalties of up to 200% and the risk of being included on the Government’s public name and shame list.

The HMRC National Minimum Wage (NMW) team recently sent a number of nudge letters to the Motor Retail sector, providing an employer’s checklist highlighting common risks for the sector on NMW compliance. There was no requirement to confirm a review against the checklist had been conducted but these letters are often a pre-curser to HMRC enquiries being opened.

We are aware HMRC has now opened full NMW investigations in the sector that will attract naming and shaming in addition to financial penalties where breaches are found. Our observations on the areas of consideration in current HMRC investigations are:

• A focus on ‘work type’ to ensure the correct calculation is being used to determine NMW pay
• Consideration of the pay arrangements, especially commission payments, used when calculating NMW pay
• Salary Sacrifice arrangements for higher earners when coupled with other NMW risk areas
• Employer requirements for workers to purchase items such as tools or uniforms
• Recording all time worked and having sufficient records to evidence all working time
• Employee interviews to assess understanding of business processes and NMW controls 

HMRC will continue to focus in the sector following their activity and we recommend you take a proactive approach to reviewing current NMW compliance, especially if you have not yet had a NMW enquiry. 
 

We have a team of NMW specialists, including ex-HMRC NMW investigators, who are experienced in supporting businesses with practical advice to improve NMW compliance. 

Read our detailed analysis of the changes to NICS.

Motor retailers and managing the NIC increase

 

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Salary sacrifice and NICs

Salary sacrifice arrangements can deliver valuable NIC savings for both motor retail employers and employees with less disruption than other alternatives. However, you must be careful to ensure all employees’ earnings remain above the NMW.

A review can help you understand if it is worthwhile continuing to provide a benefit, for example rising costs may prompt a shift in your offering such as continuing company cars but limiting them to electric vehicles only and no new double cab pickups from April 2025 onwards due to the cost implications.

Pensions

Although operating a pension salary sacrifice arrangement is a well-established practice, it is not straightforward. The legal arrangements and associated contracts must be watertight, so we very strongly encourage you to get professional advice.

EV schemes

EV schemes are gaining popularity through salary sacrifice arrangements. The available savings will depend on the model and its list price but the benefit-in-kind charge is just 3% of the list price, offering both you and your staff attractive savings. If you are offering an ECOS scheme that will no longer be effective, you may wish to consider moving to salary sacrifice on EVs.

Upcoming changes to Employee Car Ownership Schemes (ECOS)

The 2024 Autumn Budget announced plans to close loopholes in employee car ownership schemes being used to circumvent company car tax. The changes come into effect from 6 April 2026. Draft legislation has not yet been published, so it is not yet clear what schemes are going to be affected. Any changes are likely to have a large impact for motor retailers because it is such an intrinsic and engrained part of employment packages.

If you have an ECOS, you will need to find out if you are affected once the legislation is published and take advice on what action to take before April 2026.

Conclusion

There is no quick fix to managing the cost of the upcoming increases to employer’s NIC and NMW. However, now is the time to re-engineer reward packages to maximise employee satisfaction while minimising overall expense. Identifying win-win solutions, such as pensions salary sacrifice, will strengthen your business’s ability to manage the increases.

For help and advice on any employment tax issue please contact Chris Bond.