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

michaels

Using SS down to NMW plus personal contributions down to zero gets me lots of tax credits cos of having 3 kids - worth considering if you are in the same position and can afford it?

Thrugelmir

Snakey wrote: »

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.

Before making the pledge. The Government along with the Treasury has clearly identified areas where there are easy wins to be made. Makes for good media coverage too. As the opposition is unlikely to raise objections.

jamesd

One of the interesting things about pension salary sacrifice is that it gives basic rate income tax payers something more similar to the combined income tax and NI relief that higher rate tax payers get. Instead of 40% vs 20% it's a much narrower 32% vs 42% (plus any employer NI sharing).

As a purely practical matter, if basic rate salary sacrifice is eliminated, my basic rate pension contributions will be eliminated by me. I'll just do something more beneficial instead and start to recommend here that others do the same. If undermining pension use and raising total tax relief costs is a policy objective it'd be a winner! VCT or EIS relief repeatedly every five years at 30% a time instead of one off 32% in the pension, which is taxed partly on the way out, unlike VCT or EIS.

gadgetmind

The way that budgets work is that they leak that they are going to shoot us through the lungs and end up just giving us a good solid kick in the balls, for which we feel grateful.

zagfles

jamesd wrote: »

One of the interesting things about pension salary sacrifice is that it gives basic rate income tax payers something more similar to the combined income tax and NI relief that higher rate tax payers get. Instead of 40% vs 20% it's a much narrower 32% vs 42% (plus any employer NI sharing).

As a purely practical matter, if basic rate salary sacrifice is eliminated, my basic rate pension contributions will be eliminated by me. I'll just do something more beneficial instead and start to recommend here that others do the same. If undermining pension use and raising total tax relief costs is a policy objective it'd be a winner! VCT or EIS relief repeatedly every five years at 30% a time instead of one off 32% in the pension, which is taxed partly on the way out, unlike VCT or EIS.

Who's to say those won't be hit as well? Especially if people divert funds to them.

bigadaj

zagfles wrote: »

Who's to say those won't be hit as well? Especially if people divert funds to them.

Thought that was a reply to gadgets post, I must pay more attention!

jamesd

zagfles wrote: »

Who's to say those won't be hit as well? Especially if people divert funds to them.

I suppose this government could reduce the incentive to help small businesses grow, incentives which produce around £7 of increased turnover per Pound invested, or around £210 of increased turnover per Pound of purchase tax relief provided. An increase in turnover which the government gets to tax when it's turned into profits.

Of course governments are able to attack growing small businesses if they want to but it would seem like a pretty contrarian thing for this particular government to do it.

With such large gains from the tax relief provided these are schemes which should be encouraged, not reduced.

Snakey

I thought the problem with EIS/VCT was the risk. If they were good investments in their own right, why would they need to be encouraged with tax relief? For me, these are a great added incentive for somebody who is setting up a company or wants to throw in with a contact who is, but I would be really nervous about investing into a random one just on the offchance, when so many businesses fail. Always happy to be educated though so if I'm out-of-date in my thinking please tell me!

jamesd

ECT and EIS risk levels vary and have varied more over the years.

The VCT I've most often mentioned here is largely composed of investments that are no longer permitted for new VCTs because they were regarded by HMRC as too safe: lending 100% secured on hotels, renewable power and similar. The largest investment is in a hotel at Gatwick Airport. So it's most recent investment, under the new rules, is a formerly new private school with the loan secured on the building. At the other end of the risk range are more speculative equity investments in early technology development companies with no capital security.

EIS can have similar sorts of risk range, from growing family companies to speculative new technology businesses.

P2P has similar sorts of variation, though the most common use of the term refers to lending P2P rather than equity P2P and much of the lending P2P marketplace consists of either secured lending or lending with protection funds, though not all of it, and some places do P2P to borrowers with quite poor credit histories even though the best known UK firms don't do that. The new ability for individuals to deduct default losses from before tax income might encourage more of the higher risk consumer lending by making it less painful for consumers to do it.

One reason besides risk to give tax breaks is lack of liquidity. VCT and EIS tend to be for things that can take a while to mature to full value and the tax relief compensates for that to some degree, as well as for the risk component. It can also reinforce the expectation with things like the VCT requirement to hold for five years or repay the initial 30% relief, that allows VCT managers to make investments that don't have to have short timescales.

So, if you see someone saying that VCT, EIS or P2P is high risk or low risk or some other risk, the sensible thing to do is ask or more details about the particular thing they are thinking of. They could easily be thinking of the highly speculative end rather than the far more predictable secured lending end. Or vice-versa. And might not even know that options are available at both ends and throughout the range.