Paying salaries is an expensive affair, thanks to Employers’ National Insurance Contributions (NICs) at nearly 14%. Converting some of your salary into tax-favoured ‘benefits’ such as approved Childcare Vouchers, or employer pension contributions, generally means a saving for the employee and the employer.
An example:
Bob takes an annual salary of £60,000 so he pays tax at 40% and Employees’ NICs of 2%. The company is also paying Employers’ NICs at 13.8%. The Board of directors confirms bonuses at £10,000 to each director. Bill doesn’t need the money immediately but is unhappy with losing £4,200 in tax and NICs so he proposes to take his bonus as an employer pension contribution. The Board readily agrees to put £11,000 into his pension pot, since the company will still come out better off, having saved £1,380 in NICs.