Salary Sacrifice??

blisteringblue

We lost our FSP when our company was sold 3 years ago. We moved to a matched contribution plan and as a higher rate tax payer I had to claim the 40% tax relief manually.

We've since moved to Salary Sacrifice on 1st Jan (no option was forced on us) and for an 8% matched contribution I am a few hundred pounds better off each year but I'm wondering if this could be a way to sacrafice salary so I can get my benefits in kind down to 20% on my company car?

I've seen lots of pensions calculators but they just deal with salary amounts, none seem to factor in Benefits in Kind.

My problem is I am only just a 40% tax payer (40k give or take a few hundred), but I've a poor co2 company car so I've a 6.5k Benefit in kind that I pay 40% on.

But does salary sacrifice work that way? Ie my declared salary is 40k, even if I choose to sacrifice a large chunk of this, does my benefit in kind get calculated on my full salary or that of my sacrificed salary?

I appreciate its a large sacrifice to get my levels down to 20% tax, but if I can do it is it worth doing it?

marklv

I suggest you give up your company car and take the cash instead. I don't see any other way.

blisteringblue

marklv wrote: »

I suggest you give up your company car and take the cash instead. I don't see any other way.

Thought about that too, but drive too many miles approx 35k a year. Cash value is £5400 but I don't think it is enough to run my own car on that mileage.

I do change my car this year and am going extremely green and spending below my limit (you get cash back), but that is not until October, so just thinking if I can do something in the meantime?

Gatser

blisteringblue wrote: »

But does salary sacrifice work that way? Ie my declared salary is 40k, even if I choose to sacrifice a large chunk of this, does my benefit in kind get calculated on my full salary or that of my sacrificed salary?

I appreciate its a large sacrifice to get my levels down to 20% tax, but if I can do it is it worth doing it?

Yes....Salary Sacrifice could help you.
(The other response was incorrect)

If (say) you sacrificed half your salary and agreed to receive £20k salary and £23k as employer pension contributions, then the £20k salary will be used to calculate your BIK on your car.
I realise that you probably do not want to be so drastic...but the same principle applies.

TIP: make sure the Salary sacrifice agreement is drawn up correctly to avoid HMRC issues....

blisteringblue

Gatser wrote: »

TIP: make sure the Salary sacrifice agreement is drawn up correctly to avoid HMRC issues....

Just been speaking to my HR Director about this very thing, and he has advised me to get some proper financial advice but he did state that, yes I can get myself back down to basic rate tax before Benefits in Kind are calculated, as a ball park he said keep to just under 30k.

However he did say that you cannot chop and change if you start doing this. It will start 1st April and must continue for at least 1 tax year.

So definately something to think about before the end of March.

jamesd

Salary sacrifice reduces your salary, so the reduced salary would be used in BIK calculations.

Your salary sacrifice scheme would say what life events will allow you to change your salary sacrifice settings in the middle of a year. Things like marriage or changing home are likely to be acceptable.

BeatTheSystem

blisteringblue wrote: »

However he did say that you cannot chop and change if you start doing this. It will start 1st April and must continue for at least 1 tax year.

There is no problem choping and changing from the Inland Revenues perspective since they only see the end of year PAYE statement from the employer, as long as the accounts dept can keep track of variations then I dont see a problem.

Just wanted to let you know that this restriction is down to the employer.

Debt_Free_Chick

marklv wrote: »

My impression is that salary sacrifice saves NI on both contributions - yours and the employer's. Otherwise there would be no incentive for the employer to do this. But why do you want to find out about the employer's saving? After all it's up to them what they do with it.

I'm implementing Sal Sac with my current employer and the bill - to re-engineer our payroll & HR processes plus communication and legal advice is more than £100,000!!!! :eek:

We're using our NIC "saving" to pay those bills, leaving us nothing to pass on to employees in the next two years.

In any event, our view is that the Sal Sac will deliver an NIC saving to employees, which they can spend how they wish. We do not expect to have to redivert our (the employer's) NIC saving to employees, in addition to what they're getting.

Hard-nosed? maybe .... but we can't deliver something for nothing. If we could, we would!!

jamesd

Debt_Free_Chick, your employer is missing an opportunity, particularly when higher rate tax payers are considered.

At the moment the employee NI saving for higher rate isn't that great and it may be preferred by employees to take the income and have it for the year then use the flexibility to make a pension contribution to their own personal pension near the end of the tax year.

If instead there was a 50:50 split of employee NI above the minimum employee amount to match the employer fixed contribution then that would give the higher rate and basic rate employees an additional incentive to contribute more than the minimum. That in turn would save the employer 50% of the employer NI that they might not otherwise be able to save on these unmade contributions. 50% of the extra beats 12.8% of nothing.

For both basic rate and higher rate this helps to make the pension more competitive with the alternative way to invest for retirement, the S&S ISA. The more money you can get into work pension, the more of that employer NI can be saved.

It's not just in the interest of the employees to split the employer NI, it can also be in the interest of the employer if they are looking to save the greatest possible amount of their NI bill.

Debt_Free_Chick

We are not simply going to put any more in to the pension scheme. We already contribute 15%! And we have 2012 "to look forward to".

The cost of implementing SS is huge - and that's just advisers' fees, with no measure put on the internal resource that the business has to commit.

We are going to use some of the saving to implement financial education via workshops & surgeries, though. And we're covering "cradle to grave" financial education, not just retirement planning. I genuinely believe this is far more beneficial than simply "throwing more money" at a pension. It's a DC plan, so folk need help with making investment decisions - but those decisions need to be made with awareness and need to take account of other investments they may have e.g. ISAs

Despite our very generous contribution rate, 10% of employees are not even in the pension scheme, "choosing" instead to take a voluntary 15% pay cut.

I'm not sure what opportunity we're missing ... as we are implementing SS.

Don't get me started on high-rate tax payers. More than 30% of our employees earn more than £100k and 20% earn more than £150k ..... there is no "silver bullet" to deal with the spiteful and destructive tax hikes heading their way in 2010 and then 2011, so that's another project eating advisers' fees in five figure chunks (£60k spent so far and nothing to offer affected employees!!!).

I don't believe that (part of) the employer's NI saving should automatically be diverted as an extra contribution. one needs to look at the bigger picture. More money is useless if people are making poor, ill-informed investment decisions.

Regards