Year End Tax Planning 2021/22

As a new tax year approaches, it is important to ensure you are in the best financial position to help protect and grow your future wealth.

Our Bitesize Tax Planning provides you with details of the key allowances and reliefs available to you. The tax planning tips are available in easy to consider sections.

This article looks at Salary Exchange.

Pension Contributions

Salary Exchange (also known as Salary Sacrifice) is an arrangement where an employee agrees to a reduction in their contractual gross earnings (by an amount equal to their employee pension contributions). In exchange, the employer agrees to pay increased employer pension contributions instead.

Reducing salary in this way will reduce an employee’s gross (pre-tax) salary. However, there are advantages to doing this for both employee and employer. Because gross salary is reduced, the employee pays less income tax and National Insurance (NI) on their earnings.

The below could be the outcome depending on how the salary sacrifice scheme is structured. The simplest versions tend to just reduce the salary by the gross employee pension contribution:

As an employer, you can set up a salary exchange arrangement by changing the terms of your employee’s employment contract. Your employee needs to agree to this change.

The main advantage to employers for implementing salary exchange schemes are the savings they make in National Insurance Contributions (NICs). Employers pay NIC contributions on employees’ salaries but benefits such as childcare vouchers or pension contributions are exempt. Employers can save a considerably large amount, given that the scheme is adopted by a number of employees throughout the business

A salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates/National Living Wage (NLW) rates. Employers will need to put procedures in place to cap salary sacrifice deduction and maintain NMW/NLW rates.

For further information visit: or speak to your adviser.

See the other topics in our Bitesize Tax Planning series:

Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.

The financial conduct authority does not regulate tax advice, estate planning or will writing.

The content in this article is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

Thresholds, percentage rates and tax legislation may change in subsequent finance acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.

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