Recent statistics reveal a significant increase in the amount of annual pension tax relief, exceeding £50 billion for the first time.
This marks a £14 billion rise over five years, highlighting the growing importance of understanding these changes and their implications for your business and employees.
The substantial increase in pension tax relief
In the 2022-23 tax year, taxpayers received a total of £51.3 billion in tax reliefs on pension contributions. This figure comprises £25.4 billion in Income Tax and £25.9 billion in National Insurance Contributions (NICs).
Comparatively, in the 2017-18 tax year, these figures were substantially lower, at £19.9 billion for Income Tax and £17.3 billion for NICs.
Leading non-structural tax relief
Pension tax relief now stands as the largest single non-structural tax relief, surpassing private residence relief at £36.7 billion and reduced rate VAT breaks on food, which cost £23.3 billion.
These figures have made it clear how important pension contributions have become when it comes to the wider scope of tax relief.
The impact of fiscal drag
The cost of funding the income tax break on pensions is set to rise to £27.7 billion next year, a rise of £2 billion.
The change is attributed to adjustments in the national allowance and the abolition of the lifetime allowance, a factor known as fiscal drag.
Changes in NICs relief
While NICs relief is expected to decrease slightly in the next tax year due to a two per cent cut in the National Insurance rate, it will still represent a substantial cost to the Government, estimated at £25.3 billion in 2023-24.
Implications for business owners
These developments are important for business owners to understand so you can effectively manage your pensions within your payroll.
The rising rate of pension tax relief not only benefits your employees but also has implications for your business’s financial planning and payroll management.
Staying informed and adapting to these changes is key to ensuring compliance and maximising the benefits for both your business and your employees.
If you would like more information about the rising rate of pension tax relief and how your business can effectively manage your payroll, please contact our team today for expert advice.
