A look into the future

By LBV

14 Jun 2010

The majority of people expect that in the current economic gloom, there will be little or no pay increase this year. Couple this with the stagnation in the personal income tax allowance and many people will see their disposable income reduce as the cost of living is increasing with inflation (RPI).

For those successful individuals whose annual income exceeds £100,000, there is now an “effective tax rate” of 60% on income between £100,000 and £112,950 where their personal allowance is lost completely. For annual income in excess of £150,000, there is now the upper tax rate of 50%.

If that wasn’t enough, remember that from 2011, there is the proposed 0.50% increase in National Insurance Contributions for employees and employers. Is that it then?

Well, unfortunately not.

Just around the corner is the implementation of NEST; The National Employment Savings Trust. From 2012, employers have to automatically enrol all eligible workers into a pension scheme, a phasing process starting with the larger employers first. Membership of NEST means compulsory contributions from both the employee and employer.

So, how can employers reward and retain their employees, in the knowledge of the proposed increases in employment costs over the next few years, without affecting their businesses?

Well, one solution is salary sacrifice. It is an excellent way to reduce taxable income in exchange for a range of benefits under an employee benefits scheme, including pension contributions and childcare vouchers to name the two most common benefits.

Such benefits if set up correctly under a salary benefits arrangement, can lead to considerable tax and national insurance savings for both the employee and employer.

And remember, a reduction in taxable income and thus national insurance contributions could result in an increase in net pay for employees, as well as removing some financial pressure from the employer in these challenging economic conditions we face.

So, by implementing a well thought out employee benefits package with the benefit of salary sacrifice, the employer can enhance the employee remuneration package at little cost and, allow them to plan now for the introduction of NEST as well!

Prepared by Ashton Hoyle.
 

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