What the National Living Wage increase means and why it's worth reviewing where your business cash is held.

In today’s Budget, the Chancellor confirmed that from 1 April 2027 the National Living Wage will increase by 3.9% to £13.21 per hour.  For someone working 35 hours a week, that's an additional £910 a year in gross pay. It's welcome news for employees, but an extra cost for businesses to factor into their payroll budgets. If you employ people on or near the National Living Wage, now is the time to plan for the additional payroll costs coming in April 2027.

The real cost is bigger than the headline

The £910 represents the additional annual gross pay for an employee working 35 hours a week.  For employers, the cost can be higher once you factor in employer National Insurance contributions, pension contributions and any knock-on effect on pay for more experienced staff.

If you’ve been maintaining pay differentials between junior and more experienced employees, a higher wage floor can push up pay across your whole team. For a business with ten full-time employees on the National Living Wage (assuming that they work a 35 hour week), that’s at least £9,100 a year in additional gross wages alone, before on-costs.

Could interest on surplus cash help?

Interest earned on business savings won't necessarily cover rising payroll costs, but it could help offset some of the increase.

For example, a business holding £50,000 in an account paying 4% interest would earn £2,000 over a full year, before tax, assuming the rate and balance remained unchanged.That's money which could make a contribution towards increased employment costs, without changing how the business operates.

Of course, the amount earned will depend on the balance, the rate available, how long the money is deposited and whether the business needs to access those funds.

Making it work in practice

1. Separate your cash into tiers. Keep what you need day to day in an accessible account, and move surplus funds, such as tax provisions or reserves, into an account that pays interest.  

2. Review your options early.  Take a look at where your surplus cash is held and whether it could be earning a better return. Even a few months of interest could make a useful contribution towards rising costs, provided you have enough cash available to meet your business commitments.

3. Match access to your cash flow. Check how quickly you might need the money. Tax bills and quarterly VAT payments are predictable, so funds earmarked for them can often sit in an interest-bearing account until the due date.

4. Revisit regularly. Rates change. Review your cash position each quarter to make sure it’s still working as hard as it can.

Don’t forget the tax treatment

Interest isn’t free money. For a limited company, interest income is generally subject to Corporation Tax, so factor that in when estimating what you’ll keep.

Interest earned on business savings may be subject to Corporation Tax, so businesses should take this into account when calculating the potential benefit. This applies to individuals, so if you’re a sole trader or partner, it’s worth checking how it affects you. Speak to your accountant about your specific position.

The wider Budget picture

The National Living Wage rise is one part of a larger package. Retail, hospitality and leisure businesses will benefit from a two-year real-terms freeze in business rates bills, and around 70,000 more of them will be taken out of business rates altogether through a higher Small Business Rates Relief threshold.  

Getting ahead of April 2027

The increase in the National Living Wage will add to payroll costs for many SMEs. While interest on business savings won't remove that pressure, it could provide an additional return on cash that might otherwise be earning little or nothing.

For businesses with surplus funds, it's worth reviewing where that money is held, what it's earning and how much needs to remain accessible.

Akoni brings savings products from a panel of 25 partner banks together in one place, helping businesses compare rates, manage deposits and spread cash across different institutions without opening multiple banking relationships separately.

Could your business cash work harder? Register with Akoni to explore the savings options available.  

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