Companies use pensions loophole to avoid paying tax

The government faces losing more than £1bn a year in tax revenues as companies increasingly adopt a technique than appears to leave both employers and employees better off.

The measure, which is totally legal, has been coined the ‘tax dodge of the decade’ by finance experts.

British Telecom, Tesco, J Sainsbury, LogicaCMG and Ernst & Young have all started to adopt the technique, aimed at reducing national insurance (NI) bills for both company and staff, reports The Times.

The saving is achieved by rejigging staff pension arrangements so that employees are no longer required to contribute to their pension scheme.

The company agrees to take on the commitment itself, but docks the employee’s salary by an equivalent amount.

BT, which started applying the method in June, told The Times that it would save £10m in NI payments each year, while its employees would be saved the same amount.

About 76,000 BT employees, 90 per cent of those eligible, have signed up in the first wave of a two-stage pay restructuring programme. More BT employees are currently signing up for stage two.

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