Auto-enrolment and reducing your tax bill

Firstly, what is auto-enrolment and who’s got to pay?

Auto-enrolment, or Workplace Pension Reform, is a new legislation that was introduced by the Government in October 2012, where all employees must be automatically enrolled into a pension scheme, provided they meet certain criteria (below):

What’s the problem?

There are various contribution basis and salary definitions employers can use in order to meet the legislation requirements. These are set to increase in the future, with the first increase due in October 2017, then increasing again in October 2018.

By October 2018, employers will be required to pay at least 3% of the employee’s salary with total contributions of at least 8% of salary. What you may not realise, is that it could be far more tax efficient (and NI-efficient) for the employer to pay the total pension contributions – and here’s why...

Salary Sacrifice

The idea is simple; rather than deducting the employee’s contributions from their net salaries, employees can agree to reduce their gross salaries in exchange for you paying their part of the auto-enrolment contributions. This is called “salary sacrifice”.

But where’s the saving?

Well, by the employee giving up some of their gross salary, both the employee and employer will reduce the amount of NIC’s they pay on that ‘exchanged’ part of the salary. The money the employer saves from reducing salaries can then be paid into the pension fund or used elsewhere within the business. Ultimately, the pension contributions made are the same, but both the employer and employee save on NI contributions.

Employees will also receive higher rate tax relief at source on any contributions they make.  

So, what’s the saving?

With minimum contributions being made, the saving isn’t going to be too substantial. However, when you take that saving, multiplied by 15 employees over a few years, the NIC savings will soon accumulate and reduce your tax bill.

Like with any change in legislation, there are cost implications and salary sacrifice can reduce this cost for many employers. However it is useful to bear in mind that it may not be suitable for everyone.

(It is important to seek advice should you wish to set up your scheme using salary sacrifice.)

Top tips for managing your business banking

Business is hard, and money is precious, so we should do everything we can to minimise the expenses and maximise our returns. One of the areas people totally overlook when thinking about their business finance is the income and expenses from the bank.

Top tips to make sure you maximise your money:

1. Talk to the bank and find out how much you pay for your accounts and what you get for it. Many people set up an account and then don’t review it for years. It may be that you are using an account you don’t need and you could reduce the monthly account fee or move to something more relevant for your business.

2. Look at the other services you get with your account, a lot of accounts now come with roadside cover or travel insurance and other perks.  People forget this and purchase separate travel insurance, roadside cover and so on. If you are happy with the level of cover the bank gives you then cancel your other policies. You don’t need two of these things, so save the money.

3. If you are one of the lucky people with savings, research the market to see who has the best savings interest rates, if you have left your money in an account for a few years it is likely the rate you are getting is not the best one available.  So move your money to get as much return as you can.

4. To maximise the interest you earn, try to make sure any spare or unused funds (if you have any) are transferred into the account with the highest interest rate. Just make sure you check you still have access to the money when you need it and it’s not ‘locked in’.

5. The flip side of researching a savings interest rate is to look into the interest rates you pay on loans and overdrafts. These days many of us operate with some form of debt and like with savings we tend to just go with whatever the bank tells us. It’s much easier to change accounts now so find out how much interest you pay and see if you can get a better rate.

6. Check what the bank is doing and don’t be afraid to question them. Banks make mistakes and can over charge or enter erroneous transactions which they may not realise. So check your statements, query anything you are not expecting, and argue your case if you get fines or charges you don’t think you should have to pay for.

Just a quick check online can provide you with the information you need to action most of these points… and you are online now…. so why not do it now?

For further information please contact Erin: erin.walls@wardwilliams.co.uk

www.wardwilliams.co.uk

Auto-enrolment Capacity

Auto-enrolment is upon us and already there appears to be a number of sizeable obstacles in an employer’s path which either have not been fully considered or are not being addressed.

Obstacles

· It is estimated that current mainstream pension product providers can support the setting up of around 2,100 new pension schemes each month.

·  It is believed that, at its peak, capacity for around 70 times this amount might be needed.

·  Many have assumed that product providers will be keen to accept increasing numbers of new schemes; however as with commercial organisations in other sectors, providers will only be keen to take on new schemes which they believe will be profitable. This could adversely impact upon small to medium sized companies who have a low to medium average wage structures or have high staff turn-over.

·  This ‘cherry picking’ is likely to come into full effect in 2014/2015 as the main bulk of UK businesses start to implement their auto enrolment.

·  The result could be that those deemed not profitable may be forced to use NEST, as their pension scheme provider. 

Whilst there is nothing inherently wrong with NEST, unlike other providers, NEST provides no administrative support to employers and so small companies, who are more likely to have limited  internal HR resource, will be very much left to their own devices.  Missing your auto-enrolment staging date could result in a sizeable fine being levied, with few, such as lack of administrative support, excuses being acceptable.

Answers

·  Employers must start planning as soon as possible.

·  The Pensions Regulator suggests this should be at least 6 months, Ward Williams Financial Services suggest 9-12 months to ensure everything is in place well in advance.

·  Early establishment will not cost anything extra and contributions need not be started prior to staging date, however with the potential ‘rush’ to enrolment likely to happen in the later stages of 2014, could your business afford to meet the penalties?

To discuss the implications of auto-enrolment and how Ward Williams Financial Services could help you with meeting your obligations, please call (01932) 830664 to organise a no obligation, initial meeting.