12 April 2022
Thursday 23rd March 2022 has been named “Black” Thursday and” D-Day” by UK newspapers, as the country woke in the expectation of even further budget squeeze. Now we have had time to reflect on Rishi Sunak’s eagerly awaited budget it’s important to understand the implications the announcement will have on your business.
There are several factors that contribute into hardening budgets of the UK consumers:
- Increase Energy Cap
- Increased Interest Rate
- Consumer Price Index that is expected to reach 6% in April, driven by accelerating inflation rate
- And last, but not least increased National Insurance Contributions coming into effect from 6th April 2022.
Although the Government have announced a range of support measures to help households and individuals to deal with increased costs of living, one component remains unaffected. Despite calls to completely cancel the proposed tax increase, National Insurance Contributions have risen as planned although the income threshold, from which National Insurance is paid was agreed to be increased, to soften the impact on average income taxpayers.
Nevertheless, there is a solution that can help reduce the net impact of tax increase and even make further savings on National Insurance Contributions for both, employers and employees. This silver bullet is called “Salary Exchange” and is something every employer should be either revisiting or considering as a priority.
Salary Exchange is a growing in popularity method of administrating employee pension contributions and other voluntary employee-funded benefits, to provide National Insurance Contributions (NICs) Savings for both employers and employees involved. Those are the most common benefits administered via Salary Exchange:
1. Pension Contributions
Employee contributions are deducted from gross pay before Income Tax and National Insurance Contributions (NICs) are calculated. As pension contributions are deducted first, Income Tax and NICs are calculated on a lower amount, providing for Tax Relief at Employee’s Marginal Income Tax rate, Employee NICs Savings and Employer NICs Savings.
2. Cycle to Work
Introducing a Cycle to Work scheme allows employees to purchase bikes and cycling equipment in 12 or 18-month instalments, receiving Marginal Rate Income Tax Relief and NICs Savings. The scheme is operated by employers in conjunction with participating providers. Employee chooses the value of the voucher they wish to purchase their cycles with, up to a maximum value set by the employer. The voucher is then exchanged for selected cycles and equipment. The Employer, in turn, pays the value of the voucher to the provider, recovering the costs from employee via monthly deductions from Salary. The deductions are made from gross pay, reducing the amount of earnings subject to tax and NICs for both employees and employers.
3. Ultra-Low Emissions Vehicles (ULEV)
Recently introduced, this scheme is growing in popularity. The scheme allows for employees to lease an Ultra-Low Emission Vehicle from a particular provider, their Employer has an agreement with. The monthly premium is then deducted from gross pay. This will allow employees and employers to make savings on National Insurance Contributions. The scheme however, is treated as a Benefit-in-Kind, therefore, Income Tax Relief is not applicable in this case, in comparison with Cycle to Work or Pension Contributions Examples. With the typical amounts being significant, savings for both employees and employers can prove substantial.
Introducing Salary Exchange for at least pension scheme, or providing all the benefits above, employers can support their employees in the time of the “increased squeeze”, whilst making National Insurance Contributions Savings themselves.
Focused, diverse and employee minded benefits programme
All of these benefits complement a focused, diverse and employee minded benefits program and should each be considered on their own merits as part of any employer of choice’s objective of supporting employee wellness across emotional, physical and financial aspects.
If you have any questions regarding salary exchange or your current employee benefits package – please get in.