Company pensions - salary sacrifice

[atolhurst]

I've tried three or four different departments on the HMRC who have referred me to another department who have referred me to another who have referred me to where I started, so I thought I'd ask you rather clever AB'ers to see if you've any experience with this;

My question is about salary sacrifice regarding pensions.

If someone got a gross �10,000 per annum salary and wanted to put �1000 per annum into their pension, their salary becomes gross �9000. From that amount, the tax and NI is deducted and they then get their NET pay.

My question relates to the employer NI in this circumstance. If I have my �10,000 employee wiht no sal sacrifice, they are being paid the full �10,000 and therefore, I am giving 12.8% of �10,000 in employer NI.

But if that employee is on salary sacrifice and thus only �9,000 is being processed as salary, what amount does the company pay employer NI on? The original �10,000 before the salary sacrifice or the �9,000 after the salary sacrifice?

[kags]

If the salary sacrifice scheme has been set up carefully and approved by HMRC, the employer pays NIC on the lower amount (in your example �9000) - that is usually the reason such scheme are set up in the first place.

[JudgeJ]

This scheme is beneficial to both employee and employer because the amount of pay reckonable for NI contributions is reduced. This is because, on paper, the employee ceases to pay into the company pension scheme. Those costs are met by the employer. To offset this, however, the employee�s reckonable pay is reduced by the amount of the pension contribution. The result is that both pay NI contributions on this reduced amount. Note that this principle does not extend to Income Tax, only NI.

[buildersmate]

Some organisations give the sum equivalent in NI that they don't pay back to the employee's pension pot (but obviously they don't have to).

[atolhurst]

Great, thanks for that.

Kags, you refer to an approved scheme by HMRC. Do you know how one gets their scheme approved?

[Im a BusyBee]

We (as a company) pay many thousands each year by way of salary sacrifice, our FA sorts out all the red tape and no one pays NI or PAYE. Do you have someone arranging all your financial matters who could advise - they would be certain of dealing with the issue correctly.

[kags]

HMRC won't usually give approval in advance of setting up a scheme because it is really an employment law issue. Once the scheme is running though, they will give their approval of your accounting for tax and NI, so you can be assured that you are accounting correctly. This process should highlight any errors in the set-up at an early stage. I would suggest you contact your normal PAYE office for further advice.