A sacrifice worth making

How would you like to offer your staff a pay rise without it costing you a penny?

If yes, perhaps it is time to think about setting up a ‘salary sacrifice’ pension scheme at your practice – and letting HMRC pick up the bill.
Don’t be fooled by the name, ‘salary sacrifice’ actually works out very well for both the employer and the employee.

Pensions in general benefit from income tax relief, however in addition to this, salary sacrifice schemes are also exempt from national insurance payments for both employees and employers.

This is particularly welcome news when you consider that national insurance rates increased by one percentage point in April of this year.
The biggest winners of salary sacrifice pension schemes are basic-rate taxpayers, who could see their pension pot increase by 34%, while higher-rate taxpayers will still receive the not-inconsiderable boost of 18% to their pension.

These numbers are easily explained: basic-rate taxpayers pay 12% national insurance, while higher-rate taxpayers pay 2%, not forgetting the hefty 13.8% paid by employers.
A salary sacrifice pension scheme has to be arranged through the employer, who makes the contribution payments on the employee’s behalf. To encourage them to do so, the employee agrees to sacrifice some salary.

Interestingly, despite the negative connotations of the name, neither the employer nor the employee is sacrificing anything!

The employee’s pay packet after tax stays the same as before and can even increase in certain circumstances.
There is no need to have a formal company pension scheme in place to organise a salary sacrifice pension.

All that is required is an employer/employee association, so this excludes sole traders and partnerships, but directors of limited companies can still reap the benefits.
Salary sacrifice also works with personal pensions and SIPPs, so practice owners have plenty of opportunity to reward valued employees and increase staff retention at no additional expense.
For more information please visit www.lansdellrose.co.uk or call Lansdell & Rose on 020 7376 9333.

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