National Insurance increases can be offset by pension contributions

From April 2022, employees and employers will face a National Insurance (NI) rise of 1.25 per cent. From 2023, the tax will be renamed as a health and social care tax, to pay for the social care system. However the figure of 1.25 per cent is deceptive, because the actual increase employees and employers will have to shoulder is more like 2.5 per cent. Employees will see a greater reduction in their salary, and employers will face higher NI costs. 

You can, however, mitigate against these NI rises to benefit both employer and employee. Assuming you have a workplace pension in place, through salary sacrifice, where an employee agrees to reduce their gross earnings by the same amount as their pension contributions, in exchange, you can agree to pay increased employer pension contributions instead. 

The result is that both the employee and employer pay less NI tax. The employee pays less Class 1 National Insurance Contributions (NIC) because they are waiving their right to a higher salary, which is compensated by the extra employer contributions to their pension. And the employer contribution is not liable to Class 1 NIC as it is payable to a registered pension scheme instead of a salary. 

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This post was written by SKHR