Salary Sacrifcie to NMW and stuffing pension - is NMW annualised?

michaels

I am thinking of salary sacrificing down to NMW for 15/16 into my pension in order to take advantage of some unused allowance for the previous 3 years in the expectation that in the coming years there are going to be less and less tax advantages for pension contributions.

Unfortunately I have not started in time so for the first 2 months of the year (paid monthly) I have been paid considerably more than NMW. Can my employer adjust my pay over the remaining months so for hours worked over the year as a whole I receive NMW or does every month have to be paid at above NMW?

rpc

I think it used to be over a 17 week average, but the 2015 regulations have it as over a pay reference period (or month, whichever is shorter).

So if you are paid monthly then your monthly pay must reach NMW for each monthly pay packet.

zagfles

You're probably aware already, but you can make normal pension contributions (eg AVC's via your employer or personal pensions) without worrying about NMW issues. Though you won't save NI, just tax.

jamesd

Sadly it has to be per pay period, typically monthly. If it wasn't for this you could save more NI by taking the pay in a lump and then taking no pay.

It probably isn't worth doing basic rate pension contributions without salary sacrifice in your position because VCTs will provide more tax relief and can provide quite good protection and 10% or more tax free annual income, depending on the VCT purchased. Two that are expected to pay over 10% after allowing for the 30% tax relief effect on purchase cost are Albion - 10.02% - and Crown Place - 11.16%. Both of which are currently open for new subscriptions. Albion is purely asset-backed so it's the safer of the two.

michaels

zagfles wrote: »

You're probably aware already, but you can make normal pension contributions (eg AVC's via your employer or personal pensions) without worrying about NMW issues. Though you won't save NI, just tax.

Thanks for the replies.

With salary sacrifice I get half the employeres NI too and of course qualify for tax credits (another good reason for doing it now rather than waiting and having universal credit come in) making it well worthwhile even in the basic rate tax bands.

Having failed to do this for the first 2 months of the year, if I do now start I am about 5k worse off than had I done it for the whole tax year because of the NMW being calculated monthly

zagfles

michaels wrote: »

Thanks for the replies.

With salary sacrifice I get half the employeres NI too and of course qualify for tax credits (another good reason for doing it now rather than waiting and having universal credit come in) making it well worthwhile even in the basic rate tax bands.

Having failed to do this for the first 2 months of the year, if I do now start I am about 5k worse off than had I done it for the whole tax year because of the NMW being calculated monthly

Pension contributions via AVC's or personal pension will also reduce your income for the purposes of tax credits.

Under UC pension contributions (by any means) will be 100% deductible from income too.

ffacoffipawb

zagfles wrote: »

Pension contributions via AVC's or personal pension will also reduce your income for the purposes of tax credits.

Under UC pension contributions (by any means) will be 100% deductible from income too.

It's less obvious what you are doing if it is via salary sacrifice though.

zagfles

ffacoffipawb wrote: »

It's less obvious what you are doing if it is via salary sacrifice though.

Yes but so what? Pension contributions are deductible for tax credits, it's not like it's a dodgy fiddle or loophole, it's something specifically legislated for.

In fact, doing it via salary sacrifice is more likely to lead to problems, since there are rules about income you could have taken but chose not to. Whereas pension contributions are separately deducted after income is totalled.

Tax credits guidance did used to state that any salary sacrifice, for any reason other than childcare, needed to be referred to the technical team. Though they've changed that now and have a list of exceptions which includes pensions.

michaels

zagfles wrote: »

Pension contributions via AVC's or personal pension will also reduce your income for the purposes of tax credits.

Under UC pension contributions (by any means) will be 100% deductible from income too.

Sure, but for UC there is a bit of a problem with savings to be got around....

However the info on AVCs is very useful as it means I have not lost out completely on tax credits by failing to act at the start of the FY (only a bit of NI but could be worse)

mystic_trev

…….saying Salary sacrifice could get the chop in next months Budget.

A PAY CUT could make you richer —thanks to a popular trick known as salary sacrifice — but experts warn that you should act fast in case the government clamps down on the rules in next month’s “bonus” budget.

Salary sacrifice can save you thousands of pounds a year and is, currently, entirely legal. Essentially it is a salary swap: you amend your employment contract to lower your gross salary, but receive something else in return, which makes you better off.

Workers can save money on everything from childcare vouchers to pension contributions, and high earners can use it to claw back child benefit, worth £1,076 for a couple with one child or £1,788 a year for those with two children.

However, experts say the government may have these generous schemes in its sights — one change relating to business travel has already been revealed — and fear the chancellor could go further in the budget on July 8.

Snakey

Yeah, I'm thinking of doing the same - after an unexpected employment blip last year I find myself with unused relief brought forward and since my new employer gives a 13.8% uplift on contributions my plan was to make huge pension payments for the rest of the year. I then realised that because NI is calculated per pay period (compared with tax which is per year) it would be better to hang fire for a couple of months before starting, so that I'd save even more. Handily it works out as slightly above the NMW (the higher one due to come in later this year), and overall I end up not having to pay higher rate tax which is a great feeling.

If they pull the rug in the budget then none of that works. I missed the May cut-off anyway (I didn't know there was an employer uplift at the time so it wasn't as attractive to me) but was going to start in June. But a June salary sacrifice won't hit my pension until after the budget, so I don't want to do that now in case they change the rules with immediate effect.

My suspicion for a suitable rule change would be to charge employers NIC on employer contributions, which would mean bye bye uplift.

Since the Government have somewhat hamstrung themselves with their promises about not raising income tax, NICs or VAT their only way of raising funds through general taxation is to broaden the base.