Possible changes to tax relief unpopular with employers

taxes

While the government is suggesting that proposed changes to pensions tax relief will encourage saving, employers are said to be less than happy about the impact the reforms would have.

Currently it is being speculated that, following the government’s review of pension taxation, the Spring Budget will unveil a flat rate of tax relief – a change revealed to be unpopular among businesses.

Research from Hargreaves Lansdown has revealed that less than a third (30%) of employers are in favour of changing the tax relief available on pensions. And of those in favour of a change, only half (53%) would want a flat rate of tax relief.

Of the employers who do think tax relief should be changed, 41% want the flat rate to be set at a higher level than the basic rate of tax relief.

Hargreaves Lansdown predicts that a flat rate tax relief may also cause a reduction to the annual allowance, meaning that employers will have to reconsider the benefits and remuneration they aim at their highest-paid staff – confirmed by the 41% of employers already examining alternative reward strategies for their higher earners.

There are also concerns around salary sacrifice, with higher earners potentially left open to tax on the benefit of any employer contributions. A large number (79%) of employers that offer salary sacrifice fear that it will be withdrawn altogether.

Nathan Long, head of corporate pension research at Hargreaves Lansdown, comments: “Rumour of a move to flat rate tax relief on pension contributions will be unwelcome with employers who are not keen on further upheaval. A flat rate could abolish pension salary sacrifice as we know it, as well as potentially introducing further tax on employer contributions.

“With any change potentially not being implemented until April 2017, to accommodate system changes, the government would probably have to introduce some immediate measure to stop higher earners from exploiting this last gasp opportunity. This could cause issues for any employers with bonuses payable in March should members wish to sacrifice them into the company pension.

“A flat rate of tax could still see a further fall in the annual allowance, potentially leaving employers with yet more work to do on finding alternative ways of rewarding their highest earners.”

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