Confusing Advice, when are contributions deemed to be paid

unkle

Having asked the Pension advisory service, HR, Pension advisor (through work) and an independent financial advisor I have a disagreement between them (2-2!).

In short;

I pay into my works pension scheme by way of salary sacrifice on the 25th of each month (pay day). Both that contribution and the employer contribution don't reach the scheme until around the 17-19th the following month which is within the regulations.

This (according to HR and works pension advisor) means that my March 2017's deduction doesn't apply to the 2016/2017 tax year but the 2017/2018 year (by virtue of the fact that it isn't 'paid' until the new tax year).

However both the PAS and and the IFA disagree and say this can be regarded as deemed paid in the 2016/2017 tax year.

I'm tending to agree with the IFA/PAS as what is clear when calculating the tapering allowance the March 'deductions' need to be included in that tax year so would be illogical for it on two occasions to be in two different tax years.

Anyone have a thought/advice/answer!?!

RuleTheWorld

if deducted from your march pay packet then it's quite clear...

unkle

But technically it's not deducted as it's salary sacrifice.

mgdavid

unkle wrote: »

But technically it's not deducted as it's salary sacrifice.

Is it shown on your payslips? - in my experience it is, therefore payday is when it is 'paid'. That it is not received by the pension company until some time later is irelevant.

unkle

mgdavid wrote: »

Is it shown on your payslips? - in my experience it is, therefore payday is when it is 'paid'. That it is not received by the pension company until some time later is irelevant.

Thank you for that, yes it is shown on my payslip, thats a very good point.

jamesd

See deemed date of contributions and observe that this is not a net pay arrangement so the guidance on those that it is the date of deduction from pay does not apply.

Ensure that the IFA and PAS know that it is not a net pay arrangement when asking them.

HMRC have replied to a question saying that the date of payment for employer contributions - which salary sacrifice contributions are - uses the same rules as employee contributions.

So HR and works adviser seem correct and IFA and PAS wrong.

Then seek guidance from HMRC who enforce the rules if still required.

So far as payslips go, remember that salary sacrifice is not a deduction from pay. You gave up the right to that as pay when you sacrificed it. All the payslip is doing is advising you about a contribution that your employer intends to make.

unkle

jamesd wrote: »

See deemed date of contributions and observe that this is not a net pay arrangement so the guidance on those that it is the date of deduction from pay does not apply.

Ensure that the IFA and PAS know that it is not a net pay arrangement when asking them.

HMRC have replied to a question saying that the date of payment for employer contributions - which salary sacrifice contributions are - uses the same rules as employee contributions.

So HR and works adviser seem correct and IFA and PAS wrong.

Then seek guidance from HMRC who enforce the rules if still required.

So far as payslips go, remember that salary sacrifice is not a deduction from pay. You gave up the right to that as pay when you sacrificed it. All the payslip is doing is advising you about a contribution that your employer intends to make.

Thank you, that seems to answer it.

It is very odd though as one years earnings (and pension deductions for income tax) aren't the same as one years pension contributions. The same seems to apply to the pension allowance for higher earners which would include that March deduction in the current tax year.....

So I can pay my whole March salary into Pension yet the contribution doesn't apply to this tax year but next, need to work out if thats helpful or not!

bowlhead99

unkle wrote: »

Thank you, that seems to answer it.

It is very odd though as one years earnings (and pension deductions for income tax) aren't the same as one years pension contributions. The same seems to apply to the pension allowance for higher earners which would include that March deduction in the current tax year.....

So I can pay my whole March salary into Pension yet the contribution doesn't apply to this tax year but next, need to work out if thats helpful or not!

It is 'odd' but it is logical too.

If I could sacrifice my entire months salary I would not expect to pay income tax on that salary, because I don't have the salary... and I don't, so that operates as expected.

Then the company has said that if I didn't take a salary they would be willing to give me more contributions to my pension. But if they don't actually do a contribution to my pension until the 2017/18 tax year, I would not expect it to count against my annual allowance until they do it. As Jamesd says - basically your payslip, if it shows salary sacrifice, is telling you about money you are NOT getting paid that month on payday, and is telling you that instead they will compensate you by putting money into a pension for you, but they are not saying the specific date. They do, after all, tell you when they are likely to make the payment, if you ask.

As a similar example of 'date of payment matters': For example, you might get paid your April salary on the last business day which is 28th. However, that pay packet includes pay for April 1 to April 5, which was clearly for you doing work in the first sixth of the month. HMRC won't say that part of the April payment related to the services provided to your employer in tax year 16/17 so a piece of it needs to get taxed as 16/17 income. They let it go to the next year because it is simpler to just look at the dates of when it got paid.

So, likewise, if your employer makes a £1000 contribution from their bank account to your pension in mid April, you can see why HMRC they would consider it a 17/18 contribution, and not try to figure out that technically it was money that your employer was giving you as compensation for you turning up to the office every day in March and apply it to your 16/17 record.

By contrast though, ifyou were not on a salary sacrifice scheme and an employer makes a £1000 contribution to your pension in mid April which they had deducted from your net pay in March then this is really *your* payment, from your after-tax income in March, which they have collected as agent for the pension firm and then taken a while to get around to handing it over. You can see why that should be seen as a March payment for the purposes of tax gross-up and 16/17 annual allowances.

Or at least, you can see it if you apply a particular bit of logic to it which for the man on the street it would never have crossed his mind to consider

Triumph13

I am so grateful that the OP raised this question! I promptly emailed my employers who have finally just confirmed that 'Oh yes, the March sal sac pension contributions will be 17/18 contributions not 16/17.
Having been watching the impact of RPI on my deferred DB scheme, it was looking like real squeaky bum time as to whether I could keep my contributions below AA + carry forward and still keep my child benefit. HUGE sigh of relief.