A survey carried out by the consultancy firm LCP and Chartered Institute of Personnel and Development (CIPD) found that most Small and medium-sized enterprises (SMEs) in the UK don’t offer pension salary sacrifice to staff, which can reduce the national insurance bill for both the workers and the employer.

Salary sacrifice involves employees agreeing to sacrifice a part of their salary in return for a pension contribution from the employer. This is a common practice in large organisations that allows savings in tax contributions for the employees and national insurance contributions for both employees and employers.

SMEs to Gain by Offering Salary Sacrifice Option

Dipa Mistry Kandola, who heads LCPs flexible benefit services, said that SMEs are fearful of introducing such benefits as they think that HM Revenue & Customs would not allow such tax-saving measures. This is understandable when considering the retrospective Loan Charge that has been introduced to punish disguised remuneration tax schemes.

Chancellor Phillip Hammond’s Autumn statement in 2016 targeted salary sacrifice schemes, making them taxable similar to cash income. However, Finance Act 2017 had exempted pensions, pension advice, Cycle to Work, childcare, and ultra-low emission cars.

According to Ms. Kandola, pension salary sacrifices are here to stay and companies should benefit from the scheme. The employers can remove this right by changes in the agreement in case the Government decides to make them illegal. She has stated that LCP has helped over 20 clients switch to salary sacrifice pension schemes. Companies can make the switch easily in under six weeks.

According to Ms. Kandola, the reservations regarding pension sacrifice must be overcome as the scheme leads to big savings. Both employers and employees are the benefactors of this scheme.

The director at London-based IFS Wealth, Alan Chan, agrees with the advice of Ms. Kandola, stating that the pension salary sacrifice can bring great benefits to employers and employees. He stated that there is the case for offering the scheme. However, SMEs are reluctant to apply the scheme that they think is costly and difficult to implement.

Mr. Chan did warn that the scheme might not be around for long in its current form. Previously only a few organisations had utilised the scheme. But today the scheme has become more mainstream. When the Government realises that they are making significant losses due to the scheme, it might attack this scheme similar to the loan schemes that has caused great controversy.

SMEs are advised to remain cautious in implementing the scheme. They need to keep an eye on the legislation regarding any changes in the Government’s stance regarding the scheme. Until then they should consider making the most of this scheme.

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