Salary sacrifice pension scheme:

Salary sacrifice pension scheme

Salary sacrifice pension scheme:
Salary sacrifice pension scheme:

Can both the employer and employee save money when making pension contributions?
Pension salary sacrifice is a method of saving National Insurance Contributions (NIC) for employers and employees and yet it is reported that almost 50% of employers do not have such arrangements in place.
With NIC rate increases (due to the Health and Social Care Levy) from 6th April 2022, there is now a stronger case for employers to consider it as it can lead to a saving of up to 28.3% on employee pension contributions dependent on the level of earnings. The Government has also confirmed it has no intention of abolishing salary sacrifice for pension contributions.
A salary sacrifice arrangement is an agreement between the employer and employee where the employee agrees to a reduction in salary or bonus and in return receives a benefit. The benefit here is a contribution by the employer of an equivalent amount into the employee’s pension scheme. The employee pension contribution therefore becomes an additional employer contribution and there is no difference in the total pension contribution made into the scheme.
Traditionally employee pension contributions attract tax relief but not NIC relief which means the employee has to pay NIC and the employer has to pay NIC. Under a salary sacrifice arrangement, no NIC is payable as the gross pay of the employee is reduced.
On employee pension contributions, for a typical basic rate taxpayer, this would lead to a saving of employee’s NIC of 13.25% and for the employer it would lead to a saving of 15.05% (there could also be an additional saving of 0.5% if the employer pays the apprenticeship levy). Employees can use their savings to either boost take home pay or increase their pension contributions. Employers are also at liberty to share some savings by increasing the pension contributions made for employees.

R&D note:
An increased saving would occur for employers through R&D claims. Provided the employees are linked to R&D activities, the entire pension contributions will be subject to R&D tax relief. Contributions under the pension salary sacrifice are considered employer pension contributions and therefore allowable for R&D purposes.

Under the current economic climate employers should look into offering an improved benefits package for employees where both parties financially benefit. There are many considerations that need to be taken into account in order to ensure that salary sacrifice arrangements are beneficial for both employers and employees as there is no “one fits all” arrangement.
How can Price & Accountants assist?
Our accounting firm in London is equipped with the best accountants and tax advisors that provide clients with tailored advice and support in all tax-related issues and tax planning. We would be happy to go through feasibility for pension salary sacrifice arrangements on a no-fee obligation basis to ensure it can be beneficial to both the employer and employee population. Get in touch with our team right away to learn more. 

How to significantly reduce your tax bill by selling shares to your partner

Looking to become more tax efficient this year? Gifting shares of your business to your spouse is often recommended by small business accountants and tax advisors, in order to make use of both you and your partner’s tax-free allowances, and ultimately minimise the tax on dividends the company pays. This is a great move to make, however if you’re looking for ways to save even more and you also happen to have a mortgage, your accounting firm may not have told you to consider selling shares instead of gifting them. Here’s what you need to know:

  • Firstly, why is joint ownership best?

Instead of owning your business alone, it is widely considered good practice to own it jointly with your spouse whenever one of you is paying a higher rate of tax than the other. When you both own shares in the company, you are both entitled to use your tax-free allowances, dividend nil rate band, and other rate bands, in order to reduce the tax paid on your company dividends. Owning with your partner is a great way to become more tax efficient.

  • Should I have made my spouse a shareholder when I formed the company?

If you’re thinking it’s too late to make your spouse a shareholder in your company, it’s definitely not. Even if your spouse was not made a shareholder in the beginning, HMRC will still allow you to transfer ordinary shares to them as a gift in order to reduce your tax bill. No matter how long ago you formed your business, you can start the process of making your spouse a shareholder at any time.

  • How does this help reduce my tax bill?

Here’s an example of this tax-saving plan in action:

Joe started his company (Joe Bloggs Ltd.) over ten years ago. It has grown considerably since then, and is now being valued at around £600,000. Joe Bloggs Ltd. pays Joe £100,000 per year in dividends, of which almost £50,000 is taxed at the higher rate, and naturally, Joe would like to save on tax wherever possible.

Joe’s wife, Jane, brings in less income, and so Joe’s accountant suggests that he gift half of the shares of Joe Bloggs Ltd. to Jane, in order to make the most of her tax-free allowances and basic rate band.

  • Tax savings comparison

If you believe you could qualify for tax relief by implementing the plan above, you can discover the savings you could make in your business by getting in touch by emailing us to info@priceandaccountants.com or call us 020 3735 5119 at Price & Accountants to discuss how we can help you save on your tax this year.

We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.