How the Dividend Tax and National Insurance increases could affect you


Similarly, you may be looking for ways to mitigate the rise in NICs.

One way could be to consider additional pension contributions through a “salary sacrifice” arrangement.

Under a salary sacrifice arrangement, you give up part of your salary or bonus and, instead, your employer pays this amount directly into your pension. This is different from the normal “net pay” system where your contributions are deducted from your pay before your salary is taxed.

While your pension payments are free from Income Tax (or are eligible for pension tax relief if they are paid after Income Tax), they are usually subject to NICs. However, if you pay pension contributions through salary sacrifice, they do not form part of your pay and are free from National Insurance charges.


This benefits you as you pay less NICs. It benefits your employer too, as they also pay less NICs. Indeed, some employers will redirect the NICs savings they make into your pension as an additional perk.

Of course, you should remember that your pension fund won’t be accessible until you are 55, or 57 if you retire after 2028. So, if you choose to reallocate some of your remuneration to your pension, you need to be able to afford to “sacrifice” the sum you contribute to your pension until then.

Additionally, using salary sacrifice can reduce your borrowing potential when you apply for a mortgage, or reduce the value of other perks, such as “death in service” benefit.

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