Businesses are missing out on thousands from potential NIC savings

By Mattioli Woods

13 Feb 2014

Taylor Patterson is urging SMEs across the region to cut their National Insurance bills by considering salary exchange, a Government approved scheme, to offset the cost of auto enrolment.

The introduction of workplace pensions legislation requires employers to auto enrol eligible employees into a suitable, qualifying pension scheme, creating additional expense for companies and employees alike.

With most SMEs due to reach their implementation dates (also known as the ‘staging’ date) in 2014 and 2015, Taylor Patterson is urging companies to explore the options for managing the financial implications of workplace pensions through schemes such as salary exchange.

Paul Jackson, employee benefits manager at Taylor Patterson explained: “Many employers do not realise that the hard costs of establishing and running a compliant auto enrolment pension scheme can be offset by a simple and effective payroll adjustment, known as salary exchange. Unfortunately, many advisers consider salary exchange to be too complex or outside of their remit, but the feedback from our clients that have taken this option is that it can be implemented easily and provides a win/win outcome for both the company and its staff.”

Salary exchange is a procedure that employers can offer to employees who are members of their pension scheme and in essence results in a reduction in National Insurance contributions for both the employer and the employee.

Taylor Patterson has recommended and implemented numerous salary exchange arrangements, in conjunction with the company’s employee benefits services, with significant uptake from eligible employees. One such client is IT support and services specialist, JMC IT, which introduced a salary exchange scheme for all employees in April 2012 and has since seen almost all of its 93 employees take up the opportunity.

Dave Gill, finance director at JMC IT, said: “All our employees are eligible for our pension scheme so auto enrolment hasn’t really affected us but we have really benefited from salary exchange. All the members of the scheme have increased their actual income by exchanging their pension contribution for a proportion of their salary, saving on their National Insurance contributions.

"The company has also dramatically reduced its National Insurance bill. Everyone understands that they can revert back to a conventional full salary and pension contributions arrangement at any time and Taylor Patterson has been brilliant in explaining the calculations and benefits of the scheme to our employees and provided tailored letters for our high rate tax payers for submission to HMRC.”

Paul added: “Since the auto enrolment legislation came into focus, salary exchange has become an even more valuable and viable option. This is due to the fact that there is no longer a minimum period over which an exchange plan has to be used for it to be tax efficient. Previously, a valid exchange agreement had to remain for a minimum of 12 months. In contrast, with auto enrolment, the option to reverse an exchange arrangement can now be agreed between the employer and the employee without a minimum period applying.

“These advantages make salary exchange much more appealing for both employers and employees, as it takes away the long-term commitment that can often act as a deterrent.” Pension contributions and salary exchange arrangements are a good match as they combine the provision of a valuable tax efficient employee benefit with cost savings for the employer. Auto enrolment should make salary exchange even more popular for employers as the cost savings could be applied to meeting the costs of implementing and administering the auto enrolment requirement.

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