By: Chieu Cao, CEO, Mintago

Spare a thought for SMEs. These smaller businesses make up 99.9% of all UK private sector organisations, and even at the best of times they face countless difficulties in just staying stable and upright, let alone prospering. Imagine, then, how hard it has been for UK SMEs to survive in the past two years – having to contend with all the additional challenges, disruptions and uncertainty arising from both the pandemic and Brexit. It is a difficult climate, to say the least.

Prudent financial management has been more important than ever in weathering the recent storms; SMEs typically have fewer resources to act as a buffer in an emergency, making them more vulnerable to unforeseen problems. It is a matter of tight margins, where every decision carries added importance. In light of this, SMEs’ financial decision-makers simply cannot overlook any opportunity to reduce waste and save money.

It is a cause for some concern, then, that only 50% of UK SMEs are using the HMRC’s Salary Sacrifice Pensions Scheme – this according to a recent YouGov poll. Given how much businesses can save on their National Insurance (NI) contributions through the scheme, more needs to be done to raise awareness of it, and more SMEs must consider it as part of their financial strategies for the coming year.

How it works

The Salary Sacrifice Pension Scheme is when employees agree to reduce their gross earnings by a certain amount and in exchange, their employer agrees to pay the equivalent sum into their workplace pension.

The benefits of this apply to both employers and employees – employees enjoy savings in tax and NI contributions that will increase take-home pay, in spite of a nominal “sacrifice” of their salary, meaning both their take-home and pension input will be increased. At the same time, their employers could save thousands of pounds each year by reducing their NI tax expense.

In these tumultuous times, where sound financial management is essential, this scheme is an invaluable resource for SMEs. And yet, only half are taking advantage of it, compared to an uptake of 86% among FTSE 350 companies. Why, then, are so many small businesses missing out?

Failure to launch

One key barrier to entry for SMEs is clear: lack of awareness. The aforementioned YouGov poll showed that 17% of the businesses surveyed had never even heard of the scheme. While the Government has done a great deal to support small businesses with loans and the furlough scheme, they have not done enough to publicise this opportunity.

More needs to be done to get the word out to SME leaders; given that their size naturally affords them a lessened scope and reduced access to experienced counsel, we must ensure they are aware of the options available to them.

The other key barrier to entry is the perceived complexity of the scheme, with 14% of those businesses not already signed up stating they considered it to be too much hassle to make the switch. This is understandable, particularly as time and money are tight. While moving to the scheme is relatively simple, it takes some setting up. That said, given the potential savings on offer to SMEs, they must consider it a worthwhile investment.

A worthy sacrifice

Given the lack of awareness and misconceptions surrounding the topic of the Salary Sacrifice Pension scheme, I felt it was necessary to state the facts of the matter plainly. This scheme offers SMEs a rare chance to increase their financial standing without risk or great effort, and given the state of the current business landscape, ignorance is no excuse.

It would be foolhardy for any small business to make their plans for the new year without at least considering this option. 2022 will inevitably present fresh challenges for businesses; from increases in national insurance and inflationary pressures to further uncertainty surrounding Covid-19. However, adopting the Salary Sacrifice Pension Scheme can at least provide a welcome boost to the small businesses that drive our economy, and I hope their decision-makers will take notice.

Chieu Cao is CEO of Mintago.Mintago is an FCA regulated financial wellbeing company that helps businesses and employees save money via HMRC’s salary sacrifice pension scheme. Mintago provides a salary sacrifice pension hassle-free implementation program which creates direct savings on monthly (National Insurance) NI payments, with a platform that simplifies managing employee pension contributions. Mintago’s platform also helps find lost pensions quickly and provides financial planning tools, supported by over 1,000 pieces of informative content and tips about various aspects of their personal finances for employees.