AVCs (salary sacrifice) "treated as an employee contribution"

Snakey · 29 August 2015 at 7:41PM

What does this mean?

Whenever I've made salary sacrifice contributions before (with previous employer) it's been knocked off my gross pay and treated as an employer's contribution - so I don't get taxed on it and it doesn't show up on my P60.

What are the differences if it's treated as an employee's contribution? Does that mean I'll get taxed on it, the net pay will go into the pension fund (the one thing I am sure about is that I won't ever see the money - it will go straight from their bank account into the pension fund), and I'll have to claim tax relief myself? And the gross pay will be shown on my P60?

Also, I was told that there'd be a 13.8% uplift because of the employer's NICs, but that doesn't make sense if the payment is going to be taxed because surely they'd have to pay employer's NI on it as well.

I'm probably being stupid and/or making wrong assumptions, but I don't understand.

Can somebody help me out please - what should I expect to see a) on my payslip, b) in my pension fund?

Bonus question: when I'm looking at Annual Allowance issues, which pension input period (my PIP is the same as the tax year) would a contribution fall into if it came out of my March salary but did not get paid into the pension fund until late April? For my old salary sacrifice scheme, it was the date it went in to the pension fund - so you could use some of year 2's AA to reduce year 1's tax liability.

greenglide · 29 August 2015 at 11:25PM

If it is truly salary sacrifice then by definition the contributions must be employers contributions otherwise there is no sacrifice.

All salary sacrifice has the NI saving providing you are over the lower threshold and below the upper earning limit. Some employers also give a share of their NI savings - are they?

Are the not just saying that the employees contributions (which is an amount determined by the scheme) are paid, on your behalf by the employer?

xylophone · 30 August 2015 at 10:14AM

AVCs (salary sacrifice) "treated as an employee contribution"

Is this from a scheme booklet/information sheet?

You are sure that it is not a misprint?

Are basic pension contributions by salary sacrifice?

Check with pension administrator?

Snakey · 30 August 2015 at 10:27AM

No, it's what I was told (and quite specifically), although the use of the term AVC's was my own personal shorthand and I know they're not called that any more.

They pay 3% employers contributions which you don't have to match or anything. Those have been going in monthly, and they go in as employers contributions as you'd expect.

If I make any contributions myself i.e. by telling them to take out of my salary, I am told that:
a) this is done by salary sacrifice, so I don't pay tax on it;
b) I will get a 13.8% uplift on any such contributions; and
c) that it will be "treated as an employee contribution".

My only pensions knowledge comes as a consumer, but from what I can find out on the net items a) and b) are consistent with one another (and consistent with what I used to do at my previous workplace) but totally inconsistent with c).

If things go in labelled "employee contributions" won't the pension fund automatically give me tax relief that won't be due?

I just wanted to make sure that it wasn't me being stupid, before I go back and tell them that they've been doing it wrong for however-many years which isn't likely to endear me to anybody whether I'm right or wrong.

I'm wading around in all this because I'm trying to work out what contributions I can make without hitting the annual allowance limit, and so I was trying to confirm which year March's contributions (deducted from March payslip but not paid into the fund until 2-3 weeks later) would fall into. I seem to have confused myself - or spotted a mistake - along the way.

MDMD · 30 August 2015 at 1:09PM

Snakey wrote: »

b) I will get a 13.8% uplift on any such contributions; and
c) that it will be "treated as an employee contribution".

13.8% is the employer NI rate - and sounds like they rebate the full employer NI saving to your fund. Therefore it is possible (although a little scary) that someone at the company has got confused between employer and employee.

xylophone · 30 August 2015 at 3:38PM

Contact the administrator of the scheme to clarify the position.

Ask for a scheme booklet.

zagfles · 31 August 2015 at 9:35AM

For the purposes of the annual allowance it make no difference whether it's an employee or employer contribution, they both count towards the AA. Though I'm not sure whether it makes a difference to which tax year the contribution counts in, I suspect not. I guess it would be when the pension scheme gets the money but I'm not sure about this, anyone know?

Employee contributions are often made before tax but after NI (ie you pau NI but not tax on the contribution), this is how most schemes used to deduct contributions in the days before sal sac. So you don't get tax relief from the scheme, you've already had it.

PS are you aware of the changes to PIPs this year to tax-year align them? For most people who already have tax-year aligned PIPs it usually means contributions before 8 July are "free" as far as the AA goes.

Snakey · 31 August 2015 at 2:06PM

I know that employer contributions get counted when they hit the fund. When I researched it originally, it seemed that if an employee contribution is deducted from your pay, it's deemed to have been made on that date.

This would mean that a March payslip contribution that doesn't get paid in until mid-April would fall into the later tax year if it was an employer's contribution and the earlier tax year if it was an employee's contribution.

But I'm really in the dark about all this. I can imagine that to people reading the thread it must look like I've just misunderstood and of course it's not an employee contribution, but they specifically made a point of telling me that it was.

I suppose I can just sign up for it and wait and see a) what my next payslip looks like and b) whether the pension fund gives it automatic tax relief - but if it's wrong, won't that cause the most horrendous problems trying to sort it out after the event? (What would happen, I wonder?)

Annoyingly, the PIP thing doesn't help me as I didn't make any contributions before the Budget other than the (relatively) miniscule employer's 3% ones.

xylophone · 31 August 2015 at 5:56PM

What have you been given by way of information in writing about the pension scheme?

You can contact the scheme administrator?

Snakey · 31 August 2015 at 9:06PM

Nothing in writing. I will speak to them tomorrow - all I was trying to do in this thread was establish whether I was misunderstanding something really basic so that I didn't make an idiot of myself telling them they're (maybe) doing it wrong if they're not.

zagfles · 31 August 2015 at 9:14PM

Well I found this but not sure it helps...

http://www.hmrc.gov.uk/manuals/ptmanual/ptm053200.htm

You won't get tax relief from the scheme. Just because it's an "employee contribution" doesn't mean it's treated as paid from after tax income. As I said above "employee contributions" can be "net pay", ie taken before tax, even if not using sal sac. This is how most employee contributions to occ schemes worked before sal sac.

AVCs (salary sacrifice) "treated as an employee contribution"

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