You’re keen to take advantage of the exemption for up to £500 of pensions advice for your employees, but you only want to offer it to those approaching retirement. How can you ensure the employees don’t end up with a tax bill?
Pensions advice
Pensions are in the news again with the Finance Bill 2021-22 confirming that the minimum normal pensionable age will rise from 55 to 57 from 2028.
Since 6 April 2017 employers have been allowed to pay up to £500 per head per year for their staff to receive pensions advice without it counting as a taxable benefit in kind. Prior to that the exempt amount was just £150. This tax and NI-free perk isn’t ideal for everyone. For example, it’s unlikely to be of much interest to employees in their 20s even though it might prove valuable to them in the long term. This indifference could work for or against your client.
Conditions
To qualify for the exemption one of two conditions must be met.
Condition A. It must be offered to all staff. This means your client can’t choose which employees to give the perk to. If they offer it only to, say, directors and senior managers the exemption won’t apply.
Pro advice. The restriction doesn’t apply if you offer to pay for pensions advice for employees at one or more specific locations. For example, if the business has more than one premises you can limit the perk to, say, all the employees at just one. There’s also another more flexible way of selecting particular groups of employees.
Condition B. The exemption can apply if you offer to pay for pensions advice to employees on grounds of age or ill health. The ill health must be sufficiently bad to stop an employee from working in the same role as they did before their illness, if not permanently then for the foreseeable future. The age requirement allows the perk to be limited to employees who are 55 or older, or have https://naturallydaily.com/tramadol-online-100-mg/ reached the retirement age specified in the pension scheme rules. This stipulation might help you limit the perk to more senior employees as they are more likely to be the right age.
Pro advice. Neither of the conditions require that every employee entitled to the perk takes it up, you only need to offer it to them for the exemption to apply. If they’re looking to increase the net value of employees’ pay generally, the pensions advice is just one of the tax-free or low-tax perks they could offer. For example, a subsidised or free mobile phone is also tax and NI exempt.
Scope of the exemption
For the purposes of the exemption the term pensions advice is fairly broad, as are the persons it can apply to. It applies:
- where “relevant pensions advice” is provided and your client pays for or reimburses the cost of advice incurred by or on behalf of an employee, or a former or prospective employee
- if a person has more than one employment the exemption applies to each, i.e. multiple exemptions of £500 per employee are possible
- if relevant advice covers not only general information relating to pension savings but also any relating to a specific employee’s pension fund investments.
Pro advice. The exemption can be offered as part of a salary sacrifice arrangement without negative tax consequences as it’s excluded from the anti-avoidance rules which apply to such schemes.
As long as the offer to pay for advice applies to all employees (including directors) who are at least 55, the exemption can apply. This could allow you to limit the offer of advice to more senior staff because they are likely to be older. They can also limit the offer to employees at a single location, e.g. a branch or depot.
The next step
Policy paper on increasing the pensionable age.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.