Higher rate tax relief for pension contribution

twisterzzz

I am higher rate PAYE employee. I pay into private personal pension through my employer. The employer also matches my pension contributions.

The pension contributions are taken off as "salary sacrifice". I am currently registered for self assessment tax returns.

Looking at my payslips it seems that my employer is deducting employee pension contributions before applying tax to the rest of the salary ? At the same time my employer also matches the pension contribution to the same amount.

A snippet from my payslip is below.



Would I be right that I can NOT claim the higher rate tax relief whilst I am filing in tax self assessments ?

realaledrinker

Correct. You also seem to be getting tax relief on your 'vacation'. Do tell...

martinsurrey

realaledrinker wrote: »

Correct. You also seem to be getting tax relief on your 'vacation'. Do tell...

very common for you to be able to buy extra days holiday via salary sacrifice, so you can earn £XXk and have 25 days holiday or £YY (£XXk - £aak) and have 30 days, not unusual or wrong.

OP the advice is correct, you are getting higher rate relief at source, cant claim again.

twisterzzz

And what happens to the national insurance that employer saves paying on the pension contribution.

For example.

Gross salary is £1000 and pension (salary sacrifice) is £200.
So from HMRC's point of view the salary is essentially £800 and that figure is taxable.

However for the salary sacrifice of £200 employer would NOT pay NI ?

If I understand correctly that saved NI should be given to employee (pension pot) ? If so, at what point does employer do that ?

BoGoF

The employer doesn't have to pay the NI they have saved into your pension, you would have to check with them.

AnotherJoe

twisterzzz wrote: »

And what happens to the national insurance that employer saves paying on the pension contribution.

For example.

Gross salary is £1000 and pension (salary sacrifice) is £200.
So from HMRC's point of view the salary is essentially £800 and that figure is taxable.

However for the salary sacrifice of £200 employer would NOT pay NI ?

If I understand correctly that saved NI should be given to employee (pension pot) ? If so, at what point does employer do that ?

I dont think you do. I believe its up to them. Its a tax they arent paying, its up to them what they do with the money they didnt have to pay and therefore its not due to the employee in the way you think.

In my last company you had to agree to this, and AFAICR the deal was they split it 50/50 with you.

twisterzzz

Okay, it sounds like it depends on the employer. By law they are not required award employee the saved NI.

Wonder if that's the reason why many employers these days want to the pension arrangement through "salary sacrifice" as opposed to take pension from taxed salary. There must be some financial incentive for employers to do pension via "salary sacrifice" ?

On the other hand is the employee left any worse off going down the route of "salary sacrifice"?

Mahsroh

As BoGoF said, the NI is something you'll need to check with your employers.


Some choose to do this (a previous employer of mine did) but it's not compulsory as far as I'm aware.


If I remember correctly, where I had it with a previous employer it came off as part of their contribution into your pension, so not deducted from your salary. Only your employer can answer this 100% though, although I can't see any reference to it on your payslip, unless it's included in the £889.24. My old employer used to itemise it separately.

martinsurrey

twisterzzz wrote: »

On the other hand is the employee left any worse off going down the route of "salary sacrifice"?

Employees are left better off...

They save NI, but so do you!

with paying after tax, you both lose the NI paid.

vacheron

twisterzzz wrote: »

And what happens to the national insurance that employer saves paying on the pension contribution.

For example.

Gross salary is £1000 and pension (salary sacrifice) is £200.
So from HMRC's point of view the salary is essentially £800 and that figure is taxable.

However for the salary sacrifice of £200 employer would NOT pay NI ?

If I understand correctly that saved NI should be given to employee (pension pot) ? If so, at what point does employer do that ?

Your payslip shows a £415.92 pension payment, if your employee matches that it would be a further payment of £415.92 giving £831.84.

Your total pension on your payslip is £889.24 which means an extra £57.40 is being paid.

Your employers NI rate is 13.8%.

13.8% of £415.92 is £57.397, so the employer is giving you 100% of their NI saving which is very generous.

You do not need to receive any of "your" NI back because salary sacrifice means that you never actually paid it in the first place. (another reason why salary sacrifice is such a good thing as it saves you the additional a 12% NI (or 2% if you are a higher rate taxpayer).