Question : My business is facing budgetary constraints and I am considering implementing a salary sacrifice scheme. Please clarify what this means and how to put it in place.
Michael Black, Employment partner at Cleaver Fulton Rankin replies:
In the midst of recession, salary sacrifice schemes are an attractive option for employers who find themselves in your position.
It is essentially an arrangement where an employee agrees to give up part of their salary in return for a non-cash benefit of similar or equal value.
Some popular examples include childcare vouchers, pension contributions, car parking or health care provision. If the alternative benefit received can be treated in a more efficient way for tax and National Insurance Contribution (NIC) purposes than the salary which is sacrificed, then it is possible to generate savings for the employee at a very low cost to the employer.
For example, it is common for employers to achieve a tax saving by using salary sacrifice as a way to subsidise pensions. The tax and NIC treatment of a payment to a pension scheme varies depending on whether the payment is made by the employee or the employer. When the employer makes a contribution to a pension scheme, no NICs are payable. By entering into a valid salary sacrifice arrangement, which has the effect of “converting” an employee contribution to the pension scheme to an employer contribution, there is a potential NIC saving.
When it comes to implementation, it is absolutely crucial that employees give up potential future remuneration, for the purposes of accounting to HM Revenue & Customs.
This means you need to draw up revised contracts between yourself and each employee, stating clearly that the employee is entitled to lower cash remuneration plus a benefit. Arrangements must be carefully documented and clearly demonstrate a variation of the contract of employment.
This article is provided for information purposes only and does not constitute legal advice. We recommend that you obtain specific legal advice on any particular issue.
Question: My wife and I are divorcing and as a small business owner I have been investing into my pension for years. How will this be treated in the divorce?
Claire Geddis, partner with S Hill & Co Investment Advisors, replies:
Divorce is always a difficult situation and the unavoidable fact is that your home, business and any pensions either in your name or your wife’s name are all included into the one pot for division in the event of divorce.
While there is a legal requirement for pensions to be considered in a divorce settlement, many divorces in the past have crept through the net without being included.
But this is a risky business as partners can challenge divorce settlements if they discover that a financial fund was kept from them.
The factoring of pensions in any divorce settlement is rarely straightforward and it normally can be used to offset some other part of the division, ie the marital home.
This regrettably can mean that a wife gets to keep the home but has no pension to fall back on and the husband retains his pension but struggles to meet the cost of short term accommodation needs. And with the housing market as slow as it is today, many separating couples are delaying selling the family home.
However, the abolition of safe guarded rights in pensions has been simplified from April 6 and now makes it easier for the spouses to share a pension pot in a way that suits each others needs.
The better news is that if you are over 50 (55 from April 2010) you may be able to access some of your pension to raise cash for the divorce settlement or fund the purchase of a new home with the income used to fund mortgage payments.
Seeking expert financial advice both before your divorce settlement and afterwards is vital to ensure a secure new future.
Question: With ‘going green’ becoming a major issue, can you tell me how switching to wood pellets can help my business?
Richard Smith, business manager, brites replies:
There are four main reasons to consider using wood pellets in your business — energy security, pure economics, convenience and the environment.
Wood pellets are made from sawdust and wood shavings, and there is a well developed supply infrastructure in Northern Ireland. Wood pellets already provide the heating and hot water requirements of many different organisations including hospitals, hotels, retail outlets, nursing homes, schools, prisons and office accommodation.
In a volatile energy market, wood pellets have offered tremendous price security and are a more cost effective form of energy when compared with fossil fuels, with customers reporting savings of £1,400 to £100,000 per year.
In Northern Ireland, we now have a number of skilled and experienced installers that will supply, fit and service pellet boilers and while the initial capital costs to install a wood pellet boiler may be quite high, this can be quickly offset against its cheaper running costs.
Commercial premises can secure interest free loans through the Carbon Trust www.carbontrust.co.uk. Wood pellets are a carbon neutral fuel, and their use will assist businesses in meeting renewable energy targets.
The UK government is also proposing a Renewable Heat Initiative, which will provide commercial users with an income stream, linked to the heat produced from renewable fuel, such as wood pellets. This welcome approach will further develop a fully commercial and sustaining industry that not only cuts carbon emissions, but offers lower and more secure running costs for clients.