Salary Sacrifice??

Judwin

walshywalsh wrote: »

Thanks for your input Judwin, my CT calculations in both instances were based on profit - i.e 20% of 44K = 8800 - the 44K is profit taken after salary / Employer NI deductions.

The scenario I mention is fairly uncommon, if the company was only contributing 100% of my new 10K salary they would not lose out. However, in the case of SS only 20K + employers NI will come off the companies gross turnover before making the remainder liable to CT, hence, 100k minus (20000 salary & Company pension contribution) minus (1280 NI) = £78780 profit

This particular query has arisen as over the last 2 years having my own company I was reliably informed by my accountant that the company could not get CT relief on Pension contributions greater than 100% of any employees salary. As this was a one man band IT company I was taking a small salary and the rest in dividends to avoid paying additional employee/employer NI. Obviously, my company could contribute more than my PAYE based salary if it wished but would be pointless as double taxation would arise (CT and personal tax when the pension was drawn)

thanks for the prompt reply all the same

Which is why I said "If you are an employee of a company with little or no say..." . Since your IT company is/was a one man band - your words not mine - you presumably do have some say :-)

Your situation is not dissimilar to mine, and I suspect not as uncommon as you think. I decided the best way is to take my "remuneration package" as roughly 50%-50% Salary and dividends. The company also makes SS payments into a pension plan.

I wasn't aware that a company had to pay CT on payments to a pension plan above and beyond that of the employees Salary. It doesn't affect me, but I'd want clarification of that point as it's not my understanding.

Of course, everything might change at 12:30 today....

walshywalsh

I mentioned my own company indicating that was when I became aware of the pension contribution restriction (hopefully this is not the case and my accountant is wrong and I'll be happy for you to enlighten me upon clarification). How-ever (said with my best Craig revel horwood accent) I am embarking upon a job with another employer...remember the bit about "job still in the balance" and I suspect when I ask if I can sacrifice 80% of salary they will ask how I intend to live. Once again many thanks for your input

Judwin

walshywalsh wrote: »

,,,hopefully this is not the case and my accountant is wrong and I'll be happy for you to enlighten me upon clarification.

I'm not qualified to enlighten you. You need to ask a tax adviser - (there must be one around here somewhere!)

walshywalsh wrote: »

How-ever (said with my best Craig revel horwood accent) I am embarking upon a job with another employer...remember the bit about "job still in the balance"

Charrrr-Charrrrrr-Charrrr. Err I mean So that rules out dividends. If your accountant is correct, then you'll have to modify the split from 20%-80% to more like 50%-50% so that you have enough income to allow them to pay the balance into the pension.

walshywalsh wrote: »

.. and I suspect when I ask if I can sacrifice 80% of salary they will ask how I intend to live.

That's up to you isn't it? If you believe you can live on minimum wage what's it got to do with them

jamesd

walshywalsh, I can't help you with the small company issues but it may be of interest that in the 2008-9 tax year I salary sacrificed from higher tax rate income level all the way down to minimum wage myself, as a standard PAYE employee of a large company.

littleman12

Hi,
I'm new to this forum and hope someone can help solve my query.

My employer has recently announced that the pension scheme will be replaced with a pension salary sacrifice scheme. Whereby employees will not pay any contributions, the same 'gross' contribution will be paid into the scheme by the employer so the pension in unaffected, they also demonstrated that 'take home pay' will increase as a result of the salary sacrifice (obviously due to the NI saving).

Now i am a suspicious minded person, moreso now that a few people have requested the forms to opt out of this management are not keen on giving these forms out. I see the NIC savings on their end, but does it sound suspicious to anyone else? Anything i am missing etc?

Thanks in advance

pjcox2005

littleman12 - I wouldn't be too concerned. The salary sacrifice scheme (particularly if you were paying into a pension before) will mean you are in the same position as before but now with a bit more pay as you will incur less NI.

The company will also benefit so many companies see this as improving employees pay without a direct cost to them in a difficult time.

From experience, it is often due to the scheme being poorly communicated and people naturally being suspicous that causes the issues.

Judwin

littleman12 wrote: »

Hi,
I'm new to this forum and hope someone can help solve my query.

My employer has recently announced that the pension scheme will be replaced with a pension salary sacrifice scheme. Whereby employees will not pay any contributions, the same 'gross' contribution will be paid into the scheme by the employer so the pension in unaffected, they also demonstrated that 'take home pay' will increase as a result of the salary sacrifice (obviously due to the NI saving).

Now i am a suspicious minded person, moreso now that a few people have requested the forms to opt out of this management are not keen on giving these forms out. I see the NIC savings on their end, but does it sound suspicious to anyone else? Anything i am missing etc?

Thanks in advance

How much was your employer contributing to the old pension scheme? And how much did you contribute from after tax/NI salary?

It depends what you are calling 'take home pay'. Do you mean the actual cash in your pocket (available to spend on wine women and song), or the value of the cash in your pocket plus the accrued pension benefit?

If you opt out of the (new) arrangement then your take home pay will be higher than if you don't - but you won't be accruing any pension benefits, other than a slightly increased SERPS/S2P entitlement.

If you opt in to the new arrangement, your take home pay will be less, but your pension entitlement will be 11% higher (12% from 2011) due to the additional NI. If you are currently paying into a pension plan from after tax income (either the employers or a private plan) then the SS scheme will be better.

Cheers,
Judwin

littleman12

Off the top of my head i think my employer was putting in 35 a week and me 30.

By 'take home pay' i mean my net pay per week.

The total contributions to the scheme are going to be exactly the same as before because my employer is making up the difference for what I would have put in so I wont be in any better or worse of a situation pension-wise.

It just seems weird that the other situations on this thread seem to involve people paying more into their pension by having the same net pay each week/month, but with me it is the opposite, i would be getting slightly more (£3 a week) net pay but my pension contributions will be exactly the same.

Judwin

littleman12 wrote: »

Off the top of my head i think my employer was putting in 35 a week and me 30.

By 'take home pay' i mean my net pay per week.

The total contributions to the scheme are going to be exactly the same as before because my employer is making up the difference for what I would have put in so I wont be in any better or worse of a situation pension-wise.

It just seems weird that the other situations on this thread seem to involve people paying more into their pension by having the same net pay each week/month, but with me it is the opposite, i would be getting slightly more (£3 a week) net pay but my pension contributions will be exactly the same.

Ahh right. Currently you are paying £30p/w into the pension. Assuming that's the gross figure and that you're a basic rate tax payer, then you actually contribute £24 nett and the tax man contributes £6 tax. However, the £30 gross will also have employees NI deducted - another £3.30 - and that isn't refundable. So it actually costs you £33.30 gross to pay £30 gross into the pension.

With SS, the £30 is paid directly by your employer (making £65 total) This is then deducted from your gross salary before NI and Tax are calculated so both your gross and net salary will be lower. But your previous £33.30 contribution to the pension will only have cost you £30, so once you take pension contributions into account you should take home £3.30 per week more.

However, I'd point out that your employer is saving more money than you are by this arrangement. They aren't paying the employers NI (12.8%), so they'll be saving £3.84 a week.

If the people that are asking for the opting out forms are actually opting out of the whole pension, then they are turning down free money. Whilst they will take home more money now, they presumably will lose the entitlement to the employers' £35 per week. So whilst they will take home £21.70 (after tax/NI) per week more than you would, they actuallly lose the entitlement to pension contributions worth £65.

So they're either desparate for the money now (short term gain - long term pain) or the scheme hasn't been explained to them properly - IMO

Cheers,
Judwin

littleman12

yip thats what i thought, just wanted to make sure i understood it right!
to sum up then, its good for me, but better for them.

Thanks for your advice.