Leading independent accountancy firm TWP has called on employers to investigate their current wage structure and benefits for directors and staff members in light of important changes.
The Surrey-based firm cites recent amendments to pension allowances and the additional rate tax band as reasons for their call to action, and the need to reflect the cost of living as the economic crisis continues to impact the lives of many workers across the country.
The 2023 Budget announced that the tax-free annual allowance on pension contributions would increase from £40,000 to £60,000 as of 6 April 2023.
TWP is encouraging employers to review pension arrangements with staff so that they pay more each month into their pension pots to take advantage of this increased allowance to reduce their personal tax liabilities.
The new tax year also saw major changes to the threshold for the additional rate of income tax. The threshold which previously stood at earnings of £150,000 per year before being taxed at 45 per cent, has dropped down to £125,140.
With several thousands of high-earning employees across the UK likely to be stung by this threshold change, TWP is urging employers to review their wage structure and consider how they can use dividends to reduce the impact on directors and staff.
“Many employers in the UK are sleepwalking themselves and their employees into a tax trap,” says TWP’s Business & Corporate Tax Director, Stephen Nicholls. “Lots of employees will now find themselves paying a higher rate of tax due to the lower and frozen thresholds for personal tax during a time in which the country is facing a huge cost-of-living crisis, but it doesn’t have to necessarily be that way.”
Stephen points to the use of dividend payments and benefits in kind, as methods businesses can use to help their employers save money.
“With dividend payments, employees with shares can benefit directly from the profits of a business and still enjoy a £1,000 tax-free allowance”, says Stephen. “What’s more, is that you are only taxed 39.35 per cent tax on any additional dividend payments when you are in the additional rate band, much better than the 45 per cent employees would pay on their standard wages. The same is true across the various tax bands.”
Stephen believes employers should be actively reviewing how wages and benefits are structured for staff in efforts to reduce the strain on their finances.
“If companies plan carefully, there are plenty of opportunities for employees to earn more, but without the burden of additional tax payments,” says Stephen. “Considering paying more into pensions and paying out part of salaries in dividends are both brilliant ways to help employees, but I would strongly recommend professional advice on these matters to make sure you and your staff make the most of this opportunity.”
TWP has an expert team with years of experience in tax matters and is ready to advise you on any questions you may have regarding reviewing your wage structure. To find out more, please click here.