Salary Sacrifice - Have I Got This Right?

cheesetoast

I pay basic rate tax and NI, plus a student loan, and I claim Child Tax Credit.

I'm considering sacrificing £300 a year of salary for a non-taxable benefit (a mobile phone).

Have I got this right - that I'll save...

£60 a year in income tax (20%)
£36 a year in NI (12%)
£27 a year in student loan repayments (9%)

plus also get £123 extra tax credits per year (41% withdrawal rate, but going up because of taxable income going down)

£60 + £36 + £27 + £123 = £246...

So does this mean that the sacrifice will actually only end up costing me £54 (£300 minus £246) in my pocket?

And, as a side note, would I be right in thinking that the Tax Credits income fall (and subsequent rise) disregards wouldn't kill off the saving, but would simply delay it by a year, as both this year's and next year's awards would be based on the previous year's income, so this years fall would rise next year's award, and then next year's subsequent rise would cut the award of the following year after that back to the same level it has been previously?

cheesetoast

Anyone? Anyone at all?

zagfles

Looks right. Tax credits assume your other income stays stable - if income rises/falls by more than the disregard then tax credits are based on current year plus or minus the disregard rather than previous year.

So in some circumstances the tax credit effect could be zero and in other circumstances it is doubled! But the normal case would be as you describe.

grey_gym_sock

well, the student loan saving is £27 assuming you won't pay off the full loan before it is cancelled. but if you will pay it off, you'll pay the £27 + interest later on.

PennyForThem_2

be very careful with salary sacrifice within 3 years of pension age or maybe even check your pension if company pension if average salary determining pension

Sal sacrifice can affect so check terms and conditions

Savvy_Sue

PennyForThem wrote: »

be very careful with salary sacrifice within 3 years of pension age or maybe even check your pension if company pension if average salary determining pension

Sal sacrifice can affect so check terms and conditions

Also if you're likely to take maternity / paternity leave while on a sacrificed salary, or if you're applying for a mortgage (although some lenders take note of your pre-sacrificed salary).

cheesetoast

Great stuff, thanks guys