NIC rises to boost salary sacrifice uptake from middle earners
In an article in The Telegraph, several leading accountancy firms said that, with National Insurance charges set to hit record levels from this April, more employees, particularly those on middle incomes, are likely to consider salary sacrifice schemes covering benefits such as cars, pensions, medical insurance and childcare vouchers to help reduce their tax liabilities. And the firms suggest that there are real advantages in employees in doing so to mitigate the National Insurance changes.
Bob Rothenberg of accountants Blick Rothenberg told The Telegraph: 'Salary sacrifice arrangements will be even more rewarding for basic rate taxpayers from the fiscal year 2011/2012 with the increase in NICs.
'From 6 April, a tax-effective sacrifice of £1,000 of pay will attract a £320 contribution from the government in the form of £200 income tax and £120 NICs. For an employee on £26,000 this would be a reduction of more than 5% in their total tax and NIC bill.'
Mike Warburton of accountants Grant Thornton said: 'If, like me, you regard NICs as no more than income tax in a thin disguise, it could be argued that it is regressive. People earning up to £43,888 currently suffer NICs at 11% but this drops to only 1% on income above this point.
'From 6 April, the threshold drops to £42,484 but the rates rise to 12% and 2% respectively. It means that those on incomes approaching this threshold pay a higher proportion of their income in NICs than those on higher incomes.
'It also makes it all the more sensible for this group to enter into a salary sacrifice arrangement with their employer.'
'It's a view we agree with wholeheartedly in the light of the increases in National Insurance from April for both employees and employers alike,' said David Brockwell, finance director at Tusker.
Mr Brockwell added that he expects uptake of the company's salary sacrifice car scheme, SS4C (SalarySacrfice4Cars) to increase substantially this year in some part due to the forthcoming tax rises. Tusker already has more than 30 live salary sacrifice schemes in place, more than any of its competitors.
'With National Insurance levels reaching new highs this year, employees are inevitably going to try and mitigate some of the increased liabilities they face. One proven way of doing that is surrendering a proportion of salary in return for a flexible benefit, such as a new car.
'Since we introduced our salary sacrifice car scheme more than two years ago, we have seen significant uptake across both public and private sectors, from companies and organisations of all sizes and disciplines.
'We currently have more than 30 live salary sacrifice car schemes covering in excess of 400,000 employees, far more than anyone else in the fleet market, and confidently expect that to grow again this year in the light of the forthcoming tax changes.'