Salary sacrifice can be a bit of a minefield and the changes announced last week made things even more complicated!
We’ve broken down some of the impacts here so that you can see how you and your employees are actually affected.
- Income tax relief will be received on all sacrificed amounts. Only National insurance relief is being capped at £2000 of annual salary sacrificed pension contributions.
- Employer national insurance will increase if an employee’s annual salary sacrificed amount is more than £2000.
- If an employer has unused employment allowance (which is up to £10,500 per year) this can be used to reduce the increase.
- Employees whose receive employer NI savings in their pension contributions will be affected
- These changes will come into effect in April 2029
Here is an example of which employees might be affected
A typical employee contributes 5% of monthly qualifying earnings. A £2000 cap means £166.66 per month can be sacrificed before incurring national insurance contributions.
Therefore, using this example, the cap would affect employees who are earning more than £46,230 per annum.
Note this is a specific example and the capped amount will affect employees differently depending on how their contributions are calculated