HMRC warning on pensions contributions as your employer must obey rule | Personal Finance | Finance
HMRC has clarified the rules around pension contributions after a question from a taxpayer.
The person asked the tax authority: “If salary sacrifice would take me below NMW [National Minimum Wage] can the employer cap my sacrifice to NMW and if so do they still have to comply with pension minimum contribution of 8% in total?”
Under auto enrolment rules, employers have to enrol their employees into a workplace pension scheme, and the equivalent of at least 8% of the employee’s salary has to go into the pot.
Responding to the taxpayer, HMRC said: “A salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates.
“Employers must put procedures in place to cap salary sacrifice deduction and ensure NMW rates are maintained. Much depends on the type of scheme arrangements in place and you will need to check this with your employer.”
HMRC also directed the person to an advice page with more information about salary sacrifice.
If an employee opts in to a salary sacrifice arrangement, their contract has to be changed to reflect this.
The guidance, aimed at employers, explains: “The impact on tax and National Insurance contributions payable for any employee will depend on the pay and non-cash benefits that make up the salary sacrifice arrangement.
“You need to pay and deduct the right amount of tax and National Insurance contributions for the cash and benefits you provide. For the cash component, that means operating the PAYE system correctly through your payroll.”
The tax benefits of salary sacrifice will increase from April, as employers National Insurance is increasing from 13.8% to 15%.
Financial advice firm Hymans Robertson is encouraging employers to look at salary sacrifice as an option.
Hannah English, fead of DC Corporate Consulting with the firm, said: “The savings employers could benefit from, by introducing a salary sacrifice system for employee pension contributions, should not be understated.
“For every £100,000 of salary sacrificed, a £15,000 saving unlocks doors for businesses at a time where costs are being squeezed.
“Employers who already have a salary sacrifice system in place should maximise employee pension contributions in this way. They could also encourage further savings into a pension through other means – for example, through bonus sacrifice.
“This would help mitigate the changes that come into place in early April while improving the retirement prospects of existing employees.”
