The Low Incomes Tax Reform Group (LITRG) has highlighted inequalities with Auto Enrolment depending upon what type of scheme you are enrolled in and if you are low paid. Especially in light of the increase in contributions employees will be required to make from this month (April 2018).
LITG Chair, Anne Fairpo said “The increase in contribution rates makes auto enrolment a much bigger consideration for the lowest paid. The fact that many people on low incomes cannot obtain tax relief is a huge disincentive – it makes auto enrolment effectively 20% more expensive for them.”
Workers affected are squeezed by:
- Earning over £10,000 (which is needed to trigger auto enrolment)
- Earning below the income tax threshold (which is currently £11,500)
- Earning at or near the minimum wage, meaning they can’t salary sacrifice to save 12% National Insurance
There are broadly speaking two kinds of auto enrolment scheme a ‘net pay’ scheme or a ‘relief at source’ scheme. On a ‘net pay’ scheme you cannot claim tax relief. On a ‘relief at source’ scheme you can!
The LITRG are suggesting that HMRC could see from PAYE real-time data if pensions contributions have been made into a ‘net pay’ scheme (so no tax relief has been claimed), and the Government could pay the tax relief they have missed out on into their pension. This would mean the individuals wouldn’t lose out.
If you’ve got a question about any aspect of payroll or auto enrolment and pensions reporting contact one of our experienced team. Payroll Masters office is in Birmingham but we work with clients right across the UK. We are always just a phone call away.