Are salary sacrifice schemes on the way out?
Don’t let the Chancellor take your last farthing!
“The Duke of Dunstable had one-way pockets,” quipped P.G. Wodehouse about one of his more tight-fisted characters, adding: “He would walk ten miles in the snow to chisel an orphan out of tuppence.”
Right now you might be forgiven for thinking that, compared to Chancellor George Osborne, the Duke was a philanthropist on an Andrew Carnegie scale. As he delves ever deeper into the public finances to find new savings, Osborne has the air of a man who’d not only walk five hundred miles, but would happily walk five hundred more if he heard the orphan had an extra farthing hidden in his left sock.
The sense of not knowing where the Chancellor’s axe will next fall has prompted plenty of speculation about which tax perks are next in line to receive the chop. And according to the Daily Mail, prime candidates for abolition are the salary sacrifice schemes many employers offer to help reduce their own – and their employees’ – National Insurance (NI) payments.
Pension and childcare benefits
You may offer or receive benefits via a salary sacrifice scheme yourself. In a nutshell, staff take a ‘pay cut’ and instead see the extra money put towards their pension or childcare vouchers. It’s a win-win situation for both staff and employers. Workers earning less that the upper earnings limit (£42,385) save 12% in National Insurance on the money they have ‘sacrificed’. And the more people who take up the scheme, the more an employer will save on NI too.
There are other benefits for employees too. By taking a so-called ‘salary cut’, you may be able to lower your earnings to below the threshold where you can defer your student loans or carry on receiving child benefit. And if the money is paid into your pension, you can claim pension tax relief – a rebate on tax taken from your contributions.
So it’s little wonder the Daily Mail is lining up salary sacrifice schemes as the next casualties of austerity – abandoning them would be a very simple way for the Chancellor to make big savings.
Existing salary sacrifice schemes
While nothing definite has been announced, there is one possible silver lining. Tom McPhail, pensions research boss at Hargreaves Landsdown, believes the Government would probably shy away from banning existing salary sacrifice schemes. His reasoning is that it would be so complex to reverse existing schemes and sort out the changes to NI payments, they would be allowed to continue. We agree this will probably be the case.
This is why our view is that, with such a big change potentially on the horizon, it’s a good idea for all employers to get their payroll and salary sacrifice schemes in order. Even if the schemes survive the Chancellor’s Budget on 8th July, there’s no telling how long they will survive.
Time to act?
This makes it particularly important for smaller businesses to act now. Given that the vast majority of small firms will soon have to complete Auto Enrolment (AE) – a legal obligation to enrol staff in a workplace pension scheme – the moment is ripe to review your payroll, pension provision and the way in which a salary sacrifice scheme can benefit both you and your staff.
Indeed, the moment isn’t just ripe – it’s unavoidable. Companies that don’t Auto Enrol in time will face daily fines of up to £10,000. So if you’ve been meaning to get Auto Enrolment in order, why not sign up for a free expert consultation from THP? We’ll not only help you cut the cost and red tape involved in AE but we’ll make sure any salary sacrifice scheme is in place before the Chancellor reaches into your sock for that hidden farthing!