How will auto-enrolment affect your business?


Pensions auto-enrolment has been a fact of life for large companies for over a year. It’s now starting to affect smaller businesses. Before your company gets involved are there any tax issues you should consider?


Starting in mid-2015 all employers with 30 or fewer employees will, with a very few exceptions (see below), be required to have a workplace pension scheme. The latest official statistics are worrying; nearly half of all small employers aren’t aware of their obligations under auto-enrolment or even the deadline for signing up.


All employers are subject to auto-enrolment, even not-or-profit organisations and anyone employing domestic staff, e.g. a nanny. There are, however, a few exceptions. The exception most likely to affect small businesses is that for one-man (or woman) companies. If you are the only director and worker for your company, you can breathe a sigh of relief because neither you nor your company have to get involved with auto-enrolment.

Tax issues – contributions

If you’re at all familiar with pensions you’ll know that tax plays a big part in the rules and regulations. The good news as far as auto-enrolment is concerned is that contributions are treated no differently to other types of pension scheme.

Where, as is likely, your auto-enrolment scheme is a money purchase arrangement, contributions you pay as a director or employee qualify for basic tax relief at source, i.e. if you contribute, say, £80, HMRC will add another £20 making a total of £100. HMRC’s contribution is equal to basic rate tax at 20%.

If you pay higher rate tax you will need to claim additional tax relief through your self-assessment tax return, or if you aren’t required to complete one, by asking HMRC to adjust your tax code.

Tax issues for employers

If you’re an employer you’ll have more to think about than tax relief on your contributions. Auto-enrolment will be a major change to your payroll procedure. In fact, some payroll software providers are working on or have already incorporated auto-enrolment modules in their programs.

Be prepared

Even where you outsource auto-enrolment admin, if you operate your own payroll you’ll need to ensure that it’s compliant before you start collecting and paying pension contributions from and for your employees.

Tip 1. Make sure that you install payroll software updates promptly so that changes relating to auto-enrolment are in place by the time auto-enrolment applies to your company.

Tip 2. The number of firms offering auto-enrolment software is growing quickly. You might be tempted by fancy advertising and a cheap price. However, our advice is that if you’re happy with your current payroll program it’s probably better to stick with it as long as it is auto-enrolment compliant. The last thing you need is to be spending time understanding how different software works as well as coping with the new and tricky pension arrangements.

In Summary: The good news if you’re a one-man company is that auto-enrolment won’t apply to you or your company. But if it does, check that your payroll software complies with auto-enrolment requirements and ensure you install updates promptly so that it remains compliant.

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