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Auto-enrolment threshold linked to tax and NI

27 March 2012

Auto-enrolment threshold linked to tax and NI Posted by Editorial team

Payroll professionals working for large companies are likely to be preparing at the moment for the introduction of auto-enrolment legislation later this year.

One of the issues that could have been holding them back was the lack of confirmation on the earnings threshold for staff eligible to be involved in the scheme, which will see employees automatically signed up to workplace pensions.

But after a public consultation on the matter, the Department of Work and Pensions yesterday (March 26th) announced the wage level at which people become applicable for the programme will be aligned with tax and National Insurance thresholds.

For the 2012-13 tax year, the salary level at which pay-as-you-earn income tax is levied starts at £156 per week, £675 per month and £8,105 annually.

Meanwhile, the lower earnings limit for National Insurance Contributions is at £107 per week, £464 per month and £5,564 per year.

The auto-enrolment threshold will move in alignment with these levels, but who are not paid enough to be eligible for the initiative will have the opportunity to opt in.

Pensions minister Steve Webb said: "These changes strike the right balance between getting as many people into workplace pension saving as possible and ensuring that we do not enrol some people who would not financially benefit from saving.

He added that the public consultation had revealed an "overwhelming response" asking for the different tax and benefits thresholds to be aligned in this way to make the switch to auto-enrolment a simple one for businesses.

"This will help firms make a success of these reforms, as they will be able to better understand who is eligible to be enrolled," Mr Webb stated.

George Osborne revealed in his Budget last week the income tax threshold will be increased to £9,205 next April and one pensions expert has argued this will caused problems for auto-enrolment.

Speaking to IFAonline.co.uk, tax director at PwC John Harding argued businesses are already facing "a number of challenges" due to the introduction of auto-enrolment and moving the eligibility threshold around will only make this worse.

At the moment, the auto-enrolment limit matches that of income tax at £8,105, which means they will both rise together next year and to the same rate next year.

"The fact that employers may have to monitor the pay levels of many more employees as a result of the increased personal allowances in April 2013, while an unintended consequence, is likely to create still more administration for employers," Mr Harding argued.

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