Date posted: 15th Mar 2022
Salary sacrifice schemes are popular schemes but there advantages have been reduced by HMRC over the years. One of the most popular areas of salary sacrifice arrangements relate to pension contributions.
Pension salary sacrifice schemes work via a salary exchange – i.e. the employee gives up a certain amount of their salary, in return for the employer making a contribution, of the sacrificed sum, to the employee’s pension.
This is advantageous for the employee as they will save national insurance and higher rate taxpayers will not have to wait to claim back the additional tax relief associated with the contribution via their tax return (as the contribution is deducted from pre-tax earnings). The pension contribution made by the employer is tax free, so the employee does not suffer tax on the contribution being made on their behalf.
The employer also saves national insurance and some may be willing to share some of their saving by making a slightly larger contribution for the employee.
Of course the savings, for both employer and employee, will be greater post April 2022 when the national insurance rates rise, to essentially collect the new health and social care levy.
There are a few practical matters to consider such as a) ensuring that the employee’s wage does not drop below the national minimum wage levels and b) ensuring that the employee is aware that for borrowing (etc) purposes, they have a lower salary as a result of the sacrifice. Contractually, you will need to change the terms of the contract of employment. However, you may be doing this already as many employers are moving to “hybrid” working and changing the days that staff are required to work in the office.
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