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06/02/09 - Salary sacrifice schemes deflect impact of NI rises
Harry's hints
Harry's hints
Salary sacrifice schemes can reduce
the impact of NI rises
Workplace pensions are looking much more attractive as a result of National Insurance (NI) increases outlined in the pre-Budget report summary. This is because earnings contributed to pensions under ‘salary sacrifice’ or ‘bonus waiver’ schemes are free from NI and also benefit from income tax relief.
So what are the NI changes?
- There will be a 0.5% increase from 2011
- Employees earning above £40,000 will pay up to £350 more in contributions from April 2009
For example, if an employee earns between £40,000 and £44,000 and the company offers salary sacrifice, the April increase could be offset. To someone on £43,000, the NI savings from making pension contributions in this way could be worth £300. On top of this, employers can save NI on salary sacrifice arrangements and you can choose whether or not to pass this on to your employees.
Childcare vouchers, cycle to work schemes etc will all become more beneficial.
Top earners earning above £150,000 that are subject to the new 45% income tax rule will find these schemes more valuable than ever. Someone earning £300,000 making a £100,000 gross pension contribution by bonus waiver from 2011 could have this contribution boosted to £113,000. The alternative would be to have this amount cut by less than half after tax and NI deductions.
Harry’s hint - act now to ensure schemes are in place before the new tax year.
If you are already a payroll client you can be confident in the knowledge that we are fully up to date with ever changing payroll legislation and tax rules – your designated account handler will be able to advise you on any of the issues highlighted within this article. Alternatively, if you are interested in a free quote for our payroll service, the sales and marketing team can be contacted direct on 0800 731 5368.
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