Following the Chancellor’s Autumn Budget on 30st of October 2024, employers from across all sectors are still trying to understand the impact that the increase in employers National Insurance (NI) from 13.8% to 15% and the reduction in the secondary threshold (level at which employers start to pay NI) from the current £9,100 to £5,000 will mean for them as we head towards April 2025.
The press has been dominated by concerns raised from the hospitality, retail, healthcare and schools sectors. The likelihood of the Government easing back on their announcements are highly unlikely and together with the significant increase in the National Minimum and Living Wage rates announced ahead of the Autumn Budget, the question being asked is ‘What can we do?’.
One opportunity employers should consider is the use of pension salary sacrifice arrangements. Traditionally, employees pay pension contributions from net earnings. However, with a pension salary sacrifice, employees agree to a reduced salary in exchange for an increase in employer-managed pension contributions. This will help to reduce the salary upon which the employee pays income tax but also employees and employers National Insurance. Furthermore, if you are due to pay the Apprenticeship Levy, then the use of a pension salary sacrifice can help to reduce the annual pay bill (i.e. all payments to employees that are subject to employer NI such as wages, bonuses and commissions) cost upon which the Levy is calculated.
To help implement an effective pension salary sacrifice we have produced a video which considers:
- Advantages for employees who can see immediate tax relief
- Advantages for employers, especially the reduced level of employee salaries upon which their NI liabilities are based
- The importance of maintaining compliance with the National Minimum Wage legislation
- The impact on state-related benefits.
Employers need to explore all opportunities available to them and our Employment Taxes team can discuss how a pension salary sacrifice arrangement may be used to help you met your current business needs.
If you need any further advice on pension salary sacrifice, please contact Nick Bustin, Employment Taxes Director, or your usual haysmacintyre contact.
