What is auto-enrolment
Auto-enrolment refers to new Pension laws that require employers to automatically enrol eligible employees into an eligible pension scheme. Big and medium sized businesses have already been through the process but in 2016 and 2017 it starts to impact Small Businesses and Contractors.
How we can help
The information below should give you a lot of information to get started on a DIY approach to auto-enrolment but if you prefer your Caprica Accountant will be able to handle everything for you at an additional fee. See more information here.
One person companies
If you have only one Director (or only employ Directors) you are considered a one person Company for the purposes of Auto-enrolment and can opt out of the whole thing.
If you are a Contractor that has employed your spouse and they are paid less than £10,000 then you can still call yourself a one person company for auto-enrolment purposes. However, if the spouse earns more than £10,000 and is not a Director then see ‘If you have employees below’.
Should you opt out?
The downside of opting out is that you miss out on the small government contribution available under auto-enrolment.
The Government contribution is 0.2% of your qualifying earnings. So if you are on a salary of £10,000 that is £20 per year. The Government contribution is set to rise to 0.6% on 6 April 2018 and then to 1% on 6 April 2019.
For the present we do not see the Government contribution as worthwhile and would advise one person companies to opt-out.
However, we would always recommend that you have a pension and make contributions, apart from the obvious point about saving for your retirement, it is also a tax efficient way to extract funds from your Company.
How to opt out of auto-enrolment
Opting out is really easy. You need two piece of information:
- Your auto-enrolment ‘Letter Code’ – You can find this on letters from the Pensions Regulator about auto enrolment. If you don’t have it you can find it at the link below by providing your PAYE Reference and Account Office Reference.
- Your PAYE Reference – This can be found on most payroll documents (e.g. P60).
You enter these codes here – https://automation.thepensionsregulator.gov.uk/notanemployer
Your Caprica Accountant will be happy to do this for you if you ask them.
If you have employees
If you have employees aged over 22 and paid more than £10,000 per year then there is no getting away from auto enrolment.
So what you need to do:
- Find out your staging date – You can do that here, you just need your PAYE reference. Alternatively ask your Caprica Accountant
- If you haven’t already tell the Pensions Regulator who the main contact at your business is (here). You can use your Caprica Accountant as your secondary contact if you like.
- Pick a pension provider – We have put together a comparison of the three main auto-enrolment providers [here].
- Work out who needs to go into the pension and how much the contribution should be.
- Let those employees know and give them the option to opt-out. It can only be an option. It’s illegal to encourage employees to opt-out.
- Declare your compliance to the Pensions Regulator here.
As a timeline we would recommend that you do points 1 and 2 immediately, point 3 should be done two months before the staging date and point 4 one month before the staging date. Point 5 must be done within 5 months but you are best off doing it as soon as everything is sorted.
How much you need to contribute
From the staging date three parties have to make contributions for auto-enrolled employees. They are the Employer, the Employee (through salary deductions) and a small government top-up.
|The Employer||The Employee||The Government|
|From start to 5 April 2018||1.0%||0.8%||0.2%|
|6 April 2018 to 5 April 2019||2.0%||2.4%||0.6%|
|6 April 2019 onwards||3.0%||4.0%||1.0%|
The Pensions Regulator has loads of fantastic information – http://www.thepensionsregulator.gov.uk/en/employers/
We’d especially encourage you to use their ‘Duties Checker’ which neatly summarises everything that needs to be done.