Spring 2005 Newsletter Content Home Sweet Pension Anything To Declare? Death And Taxes His And Hers Oh, Gross! We Didn't Mean It Agassi Wins Time To Go It Could Be Worse... Trivial Pursuit Re: Mortgages A Marriage Made In... Time's Money Show Business Scam Of The Decade? Gift Aid Vat's Hot! Wait For It A Good Buy? Know Your Articles Rights And Wrongs

Scam Of The Decade? A national newspaper ran a story recently about the 'tax scam of the decade', run by a number of large companies, costing the Exchequer £1bn a year - but which the Revenue were proposing to do nothing about. In fact, it's such a routine matter that the Revenue didn't even regard it as tax avoidance. The journalists seemed to have taken an even harder line than the Revenue, for a change. The problem is pension contributions. If your employer pays you a salary which you put into a pension scheme, the payment to you is charged to NIC. If you are below the upper limit for NIC, the total is likely to be 23.8% of your salary - above the upper limit, it's still 13.8%, with the employer's contribution. You get income tax relief by paying salary into your pension scheme, but you don't get any of the NIC back. If the employer puts the money directly into the pension scheme, there is no NIC and no tax. So £500 paid into a pension scheme out of a £30,000 salary costs the employer £564, and the employee can only invest £445. If they change the contract so the salary is £29,500 and the employer contributes directly, both the employer and the employee benefit. So the 'scam' is changing contributory pension schemes to non-contributory ones as part of giving people pay rises. If you work the numbers carefully, you can make savings - not huge individually, but significant for a big company. There is a downside, though - if you are lucky enough still to be a member of a contributory pension scheme, your pension is based on your final salary. If that's lower as a result of this exercise, you will get a smaller pension. Jam today, or jam tomorrow? Shortly afterwards, it was announced that employee contributions to civil service pension schemes were to be increased, so Gordon Brown is clearly not involved in tax avoidance himself. If you are interested in how this works, we can discuss the details with you. This story ran in The Times in early December. The Revenue commented that they were aware of the idea but did not regard it as unacceptable tax avoidance. The savings are clearly substantial for large employers who have traditionally run a contributory pension scheme.