Pensions

Pension advice for small businesses

Pension legislation has changed quite a bit recently, and all employers are now legally obliged to offer a workplace pension.

Do all employees get a pension?

Business are obliged to make contributions for anyone who is:

1. A worker (which means employees and certain self-employed contractors)
2. Aged between 22 and retirement age (currently between 65 and 68 depending on your age)
3. Earning at least £10,000 per year
4. Ordinarily working in the UK

It is worth noting that small business owners themselves generally don’t have pay pension contributions for themselves if they are a director and employ at least one other person.

How much does it cost?

The legal minimum that must be paid by employers is 3% of the employee’s gross salary (basic salary, bonuses, commission, overtime, SSP and SMP) between £6,136 and £50,000 per annum, but the employer is entitled to pay more than this if they elect to do so.

The employee themselves is then obliged to pay 5% on the same basis, so the total minimum contribution is 8%.

How are these contributions taxed?

One particular perk of the scheme is that the employees don’t pay tax on their 5% contribution up to certain annual and lifetime limits.

For small businesses the employer’s contribution is not subject to employer’s national insurance, and the pension amount is treated as a tax deductible expense when calculating corporation tax.

How do I set up a pension scheme for my employees?

As soon as you have an employee who meets the 4 criteria above you need to set up pension scheme that is set up for auto-enrolment.

The pensions regulator lists several pension schemes that are suitable for small business owners. The most commonly used one amongst Accounts and Legal’s clients is the government run National Employment Savings Trust (NEST) scheme.

Once you’ve selected your scheme, you’ll need to write to your staff and then complete a declaration of compliance which needs to be submitted to the Pensions Regulator.

All figures correct as of Apr 2020.

Need some help?

There’s no doubt, that the pensions obligations that fall on small business owners are much more onerous that they used to be, and the process of setting up a pension scheme can be daunting if you haven’t done it before.

At Accounts and Legal, we have both lawyers and solicitors in house, so you can be sure we’ll get the maths and the paperwork right. If you are setting up a business and need to get your pension scheme set up, please don’t hesitate to drop us a line and we’d be very pleased to help.