Salary sacrifice pensions might assist scale back the monetary impression of April’s National Insurance (NI) 1.25% hike on farm companies and their workers, however there are caveats.
National Insurance contributions (NICs) are set to rise from 13.8% to fifteen.05% for employers and 12% to 13.25% for workers, from 1 April.
NFU Mutual means that if staff surrender a part of their future wage in alternate for an employer pension contribution, each may benefit.
It provides the instance of an worker on an annual wage of £30,000, who sacrifices £1,000 of that earnings as an employer pension contribution.
See additionally: More on workers points
In such a case, the £1,000 of wage “sacrificed” to, or invested in, their pension would truly price the worker £667.50, as they pay no tax or nationwide insurance coverage on the pension contribution.
Their employer would save £177 in nationwide insurance coverage, as no NI is due on sums paid into the worker’s pension, says Martin Ansell, pension professional at NFU Mutual,
This compares with regular earnings, the place an employer should spend £1,177 to pay their worker £1,000. This as a result of they pay 15.05% (£177) in employer’s nationwide insurance coverage. The worker then pays 20% tax and 13.25% NICs on the £1,000 (£332.50), decreasing what they take house to £667.50.
Check employment contracts
However, employers ought to verify that the employment contract permits cost in a non-cash profit and that staff conform to be partly paid this manner earlier than altering any funds.
Another consideration is that the wage sacrifice association mustn’t take an worker’s money earnings under the nationwide minimal wage, and the non-cash profit should be reported to HMRC on the finish of the tax 12 months.
There are additionally vital factors for worker to think about, says Mr Ansell.
“Having a decrease wage can imply decrease borrowing accessible on mortgages the place it’s decided by a a number of of wage,’’ he says.
Some state advantages will also be affected by a wage sacrifice association.
Following the introduction of computerized enrolment in 2012, all staff should be provided a office pension, however some might have opted out.
Mr Ansell says some pensions won’t provide wage sacrifice schemes however the supplier will advise on this.
Having a contract of employment is essential, he provides, as this wage sacrifice possibility doesn’t apply to contractors. Also solely an worker’s fundamental wage can be utilized for this goal, not extra time paid.