Philip Swinburn\u2019s articles from Lewis Silkin are most popular:<\/p>\n
\n within Employment and HR topic(s)
\n with Senior Company Executives, HR and Finance and Tax Executives
\n in United Kingdom
\n with readers working within the Accounting & Consultancy, Media & Information and Pharmaceuticals & BioTech industries
<\/p>\n
With changes to salary sacrifice on the horizon, we explain why
\nnow’s a good time to assess your pension arrangements and get
\nup to speed with tax compliance.<\/p>\n
Employee pensions are confusing. That’s been highlighted by
\nthe reaction to the recent announcement that the National Insurance
\ncontributions (NICs) benefits of pension salary sacrifice will be
\nheavily limited from 2029. The press coverage on this tended
\ntowards the apocalyptic. So what’s really happening when these
\nchanges come in and what sort of action might employers take to
\nprepare?<\/p>\n
This article also considers what else employers should be
\nthinking about. We see lots of employers make inadvertent payroll
\nerrors with their employee pensions. When these are compounded over
\nyears it can give rise to a hefty tax bill and \/ or damage the
\nrelationship with employees.<\/p>\n
“Salary sacrifice” and misconceptions from the Autumn
\nBudget<\/p>\n
Under a “salary sacrifice” arrangement, employee
\npension contributions are deducted from earnings before deductions
\nfor PAYE and NICs, allowing full relief at source.<\/p>\n
In the most recent Autumn Budget, Rachel Reeves announced a cap
\non the NICs saving available through pension salary sacrifice, so
\nthat that from 6 April 2029 only the first \u00a32,000 per year of
\nemployee pension salary sacrifice will be exempt from both employee
\nand employer NICs.<\/p>\n
There seems to be fairly widespread misunderstanding about the
\nimpact of this change. To help bust a few myths…<\/p>\n
\nNothing is happening immediately \u2013 the change will be
\neffective from 6 April 2029.
\n
\nThe change does not cap pension contributions at
\n\u00a32,000.
\n
\nThe change does not limit income tax relief on pension saving
\nto \u00a32,000.
\n
\nThere will be no impact on employer pension contributions, or
\nany other aspects of pension taxation.
<\/p>\n
If it’s helpful to think about the actual impact in
\nfinancial terms I gave some practical examples in my earlier
\narticle on the topic (available here).<\/p>\n
While the change will reduce the advantages of salary sacrifice
\nfor both employees and employers, salary sacrifice remains the most
\ntax efficient way to make employee pension contributions. But
\nit’s definitely going to get a bit more fiddly to operate when
\nthe NIC changes come into effect, so employers are entitled to ask:
\nis it worth the hassle?<\/p>\n
What should employers be doing?<\/p>\n
Given that the changes aren’t coming in for a while,
\nemployers have the luxury of taking a step back and assessing their
\npension arrangements. For some this might prompt an attempt to
\nconsolidate different pension arrangements that have accumulated
\nover the years (e.g. from business acquisitions).<\/p>\n
Even if you only have one pension provider and employees are all
\non broadly the same arrangements, you might want to consider
\nalternatives, especially if salary sacrifice no longer seems
\n‘worth it’.<\/p>\n
Alternative 1: “Net pay” payroll arrangements<\/p>\n
Under a (confusingly named) “net pay” arrangement,
\nemployee pension contributions are deducted from earnings before
\ndeduction for PAYE, allowing income tax relief at source. There is
\nno NIC relief.<\/p>\n
Clearly the lack of NIC relief means that this is a less
\nadvantageous arrangement than salary sacrifice.<\/p>\n
However, given a net pay arrangement can be slightly easier to
\nimplement we might reasonably see an increase in the use of this
\narrangement from 6 April 2029, where the NIC benefit of salary
\nsacrifice arrangements will be limited to \u00a3160 per year for
\nemployees and \u00a3300 per year for employers.<\/p>\n
Alternative 2: Standard “Relief at source”<\/p>\n
The (almost even more confusingly named) “relief at
\nsource” arrangement is one where employee pension
\ncontributions are deducted from net earnings after deduction for
\nPAYE and NIC. The pension provider then applies a “gross
\nup” to give basic rate tax relief, with any further tax relief
\nneeding to be claimed from HMRC (either by contacting HMRC or
\nfiling a tax return).<\/p>\n
The lack of NIC relief together with this second step to claim
\nany higher\/additional rate income tax relief means that these
\narrangements are the least favourable for employees. However, their
\nexistence endures as they are often the preferred (or at least
\ndefault) approach for many pension providers.<\/p>\n
Common errors and remedial actions<\/p>\n
Given the variety of options available it is perhaps
\nunsurprising that mistakes are made.<\/p>\n
One of the more common errors we see is where employees
\ninadvertently benefit from “double” tax relief, through a
\ncombination of (i) tax relief through payroll, together with (ii) a
\ntax gross up processed by the pension provider.<\/p>\n
In practice this can happen where an employer switches payroll
\nor pension providers, or sometimes in the transition that follows a
\nbusiness acquisition.<\/p>\n
In such cases, employers will likely need to engage with pension
\nproviders to reverse excess contributions and payroll providers to
\ncorrect submissions. They may also even need to recover underpaid
\ntax from employees. For obvious reasons this exercise is something
\nmost businesses will want to avoid, and so it is important they
\nunderstand how their existing payroll arrangements operate in
\npractice. Another common error is information not being passed to
\nthe pension provider and\/or the payroll provider, which could lead
\nto pension contributions being missed altogether.<\/p>\n
The key thing is to understand how your pension works and make
\nsure that your payroll operation and the information you send to
\nthe pension provider every month is consistent. Is it full salary
\nsacrifice, or a mix of employer contributions with either ‘net
\npay’ employee contributions or ‘relief at source’
\nemployee contributions? If you identify any discrepancies between
\nyour payroll and your communications with HMRC or the pension
\nprovider it’s always better to fix them sooner rather than
\nlater.<\/p>\n
The content of this article is intended to provide a general
\nguide to the subject matter. Specialist advice should be sought
\nabout your specific circumstances.<\/p>\n","protected":false},"excerpt":{"rendered":"Philip Swinburn\u2019s articles from Lewis Silkin are most popular:
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