Pensions & Salary sacrifice

Oompa_Lumpa

I have read the sticky on this subject, but I still have a simple question that is unanswered:

Why if I decide to sacrifie some salary (in return for an employer pension contribution), is the additional contribution not classed as a BIK?

I mean, if I gave up £4k to get a car - the value of the car counts as a BIK - and so erodes the potential saving of the sacrifice in the first place.

Why is this?

Andy_L

The 4k you gave up for a car wouldn't be subject to NI

Oompa_Lumpa

But if I gave up £4k and get a car, the value of the £4k gets added to my taxable income (as if I had received a salary of this amount) - so I have no saving in my tax bill.
Then on top of that the employer has to pay Class 1A NIC on the taxable benefit of the car.

If I understand the salary sacrifice re pensions properly - I won't be taxed on the £4k (using the numbers above), and the company won't have to pay Class 1A NICS on the sacrifice either.

So, either my understanding of the salary sacrifice is wrong, or there is pretty favourable tax & NIC treatment on this as opposed to other benefits - so which is it?

Nick_C_4

Oompa Lumpa - I think your understanding of salary sacrifice is right. And the answer on why pensions contributions get this favourable tax treatment is that it's to encourage employers to make contributions to pensions.

Oompa_Lumpa

Nick_C wrote:

Oompa Lumpa - I think your understanding of salary sacrifice is right. And the answer on why pensions contributions get this favourable tax treatment is that it's to encourage employers to make contributions to pensions.

Nick, thanks for the confirmation.