National Insurance: Britons could legally avoid April increase with unique tip | Personal Finance | Finance
The April increase will affect all workers earning over £9,880 per year, with a 1.25 percent increase which will see many paying 13.25 percent. Salary sacrifice could be a saving grace for many as it lowers their taxable income and enables them to retain ownership of their money.
Chancellor Rishi Sunak announced the plan to increase National Insurance last year in order to cover the costs of the Government’s social care plans ahead of the Health and Social Care levy.
The NI increase is expected to be temporary, only lasting until April 2023 when it will then be transformed into the new levy, a first of its kind which will be taxed on working pensioners as well.
However, as the cost of living crisis continues to worsen, there have been calls for the Chancellor to scrap the rise or postpone it in order to help struggling Britons.
Many have added that the Russian invasion of Ukraine is likely to aggravate the already growing energy bills for UK households, threatening to push many into fuel poverty without the added tax burden due next month.
READ MORE: State pensioners could get £3,000 annual boost – and sum is rising in April
The increased contribution rate is also to be paired with an increased threshold, meaning Britons will only pay NI on earnings above £9,880 instead of the current £9,568 threshold.
With this in mind, schemes like salary sacrifice are becoming increasingly attractive for Britons looking to keep their earnings away from the taxman.
Salary sacrifice generally involves a company pension scheme, essentially adding more of one’s salary into their pension pot and lowering their taxable earnings and tax burden.
Essentially, salary sacrifice is an agreement that one has with their employer to take a lower salary every month with the difference between their original salary and current earnings going directly into their company pension scheme.
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Normal company pension contributions are usually charged NI tax, although they avoid Income Tax liabilities, but through salary sacrifice both these taxes are avoided.
Salary sacrifice will mean employees take home less money every month, but are using the money to fund their retirement rather than paying it in taxes.
The amount that one can save using this method depends largely on how much they earn and what percentage they contribute.
The Motley Fool reported that employees earning £50,000 and contributing five percent to their company pension scheme would save roughly £338 every year in NI contributions.
Lowering one’s salary could also put them in a slightly worse position when it comes to borrowing money as banks similarly use a multiple of salary to calculate the availability of money they can borrow.
State benefits such as maternity pay and state pension, otherwise known as contributory benefits, can be affected by salary sacrifice as well.
This is because they depend purely on the amount of NI contributions one has made whilst they were working.
This final point will only be a real concern if employees contribute so much of their salary to salary sacrifice that they fall below the NI threshold.
