How to beat Boris’s tax grab

Even modest earners can save thousands via workplace perks and dodge the rise in National Insurance, explains Harry Brennan

Workers can dodge Boris Johnson’s shock National Insurance tax raid by sacrificing part of their salary using a common but underused scheme offered by most employers.

In a bid to shorten NHS waiting times and help solve the social care crisis, the Prime Minister unveiled a manifestobreaking 1.25 percentage point rise in NI, which will result in workers paying hundreds of pounds more in taxes each year.

But saving into a pension and taking advantage of workplace benefits purchased out of wages, known as “salary sacrifice”, can substantially reduce the amount lost to the state by lowering your taxable salary.

An employee on a £30,000 salary can currently cut their tax bill by £1,594 a year by contributing 5pc of their earnings to retirement savings, taking pensions advice, accepting an interest-free loan from their employer to buy a bicycle or paying for childcare vouchers out of their wages. However, new increased rates of NI will boost the saving to £1,782.

This assumes a pensions advice fee of £500, annual childcare costs of £2,860 and a bicycle worth £500. It also includes income tax relief as these benefits are paid out of a worker’s gross salary.

The savings can be even greater when combined with bigger pension payments and other salary sacrifice purchases, such as electric car lease deals. However, some other benefits are exempt only from NI so workers should check with their employer.

Employers too save on NI contributions when workers use salary sacrifice, which creates an incentive for firms to offer the perks. In some cases they share the savings with staff via additional pension contributions.

Other schemes, such as loans for rail season tickets or electronic equipment, offer no tax breaks and only allow you to spread the cost.

Chris Etherington of RSM UK, the accountancy firm that compiled the figures, said the tax rise would “encourage workers to look again at what they’re saving for their retirement, as well as examining the wider salary sacrifice benefits available to them”.

“But it’s important employees don’t rush into changing their salary packages, as there can be some drawbacks to sacrificing earnings. It reduces your take- home pay, which may in turn reduce the amount of life cover paid out by an employer on death in service. It will also reduce the amount of money a bank is willing to lend for a mortgage,” he said.

Currently “class one” NI for employees begins at a rate of 12pc on earnings in excess of £9,568 but falls to 2pc on anything over £50,720. But these rates will rise to 13.25pc and 3.25pc in 2022. Employers will pay 15.05pc and freelancers will pay 10.25pc and 3.25pc. c. Those aged 66 and over and still ll in employment will be forced to o contribute for the first time at a rate of 1.25pc of their earnings s from April 2023.

Tax experts have warned that ministers could be tempted to limit the perks available, although government sources played down the suggestion. Gary Smith of wealth firm Smith & Williamson said increased takeup of salary sacrifice would hit the Treasury’s projected haul. “The Chancellor might be forced to announce changes to prevent this from happening,” he added. In 2017 a number of salary sacrifice perks were scrapped in a £ 1bn raid under the former chancellor Philip Hammond, including arrangements for private school fees, parking and fuel, mobile phones and accommodation.