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Don’t pay voluntary ‘tax’ on employee pension contributions!

A simple employer/employee agreement can save unnecessary National Insurance Contributions, says Brearley & Co Tax Manager, Andrew Cowe.

“The new tax year is underway and most employees will notice increased deductions for pension contributions on their April payslips”, said Tax Manager, Andrew Cowe.  “Contributions are now 8% of pay, which will usually be 3% employer and 5% employee”.

“Most workers know that they get tax relief on their contributions, but many don’t realise that they (and their employer) pay NIC as if it were cash pay.  However, employer’s contributions are free of all taxes”.

“So it makes sense to enter into a “salary exchange” arrangement, swapping cash pay for an increased employer pension contribution.  By doing so, employees increase their net pay and employers save too, both no longer having to pay NIC”.

“Better still, this can boost pension ‘pots’ by around 25%, due to the way in which contributions are made compared with traditional arrangements, and the timing of contributions reaching the fund.

“Savings for the employer, an increase in employees’ take home pay and a boost to their pension funds, and all with the approval of the taxman. A ‘win-win’ all round!”

Andrew Cowe, Tax Manager, Brearley & Co

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