Salary Sacrifice Query

zagfles

Linton wrote: »

As it happens the tax relief sanction for exceeding the £40K limit doesnt apply to you because as an employer pension contribution SS ensures you dont pay into a pension and so dont need tax relief. What happens if an employer exceeds your £40K limit, I dont know.

It isn't a "tax relief sanction", it's a specific tax you have to pay if you exceed the AA (whether through employer or personal contributions). You have to declare it on your tax return.

Note: you don't have to declare if you have enough carry forwards available to cover you, just keep you own records in case HMRC query it.

As to whether you should maximise your SS: It makes sense to avoid 40% tax completely. Beyond that things are more arguable. Assuming you are a basic rate tax payer in retirement getting basic rate relief on pension contributions gives you a net benefit of the tax on the 25% tax free lump sum which is 5% of the whole. Nice to have but maybe other factors are more important. One thing you dont want to do is to put so much into your pension that you have to pay higher rate tax on the drawdown if you want to eventually get at all the money.

Sal sac gives NI relief as well, not just tax relief, so the benefit is 17% of the gross contribution to a basic rate taxpayer (32% - 15%). More if the employer adds some/all of their NI saving.

zagfles

Snapdragon wrote: »

OP is a she not a he and not really high income, yes 40% tax bracket but not even approaching 100k.

I had a bad experience with an IFA a couple of years ago.

I've been paying 5% via salary sacrifice with employer matching that for years. Not sure about the employer NI comments or how to tell? The amount that goes into my pension each month is twice what shows as the pension deduction on my payslip.

I suggested to the IFA, I should put a higher percentage in, but he told me not to put more in my company pension since they wouldn't match anymore than 5%. Have since realised I should have gone with my gut instinct, as that was terrible advice!

So for a couple of years I've had at least £1500 post tax income a month spare, that's been accumulating, instead of going into my pension pot and reaping the benefits of bringing my tax level down. I'm now trying to rectify the situation.

I get an annual bonus in May which I've sacrificed the last couple of years and will do again this year. I've just increased my salary sacrifice level and brought my take-home down by about £1500 a month. still paying tax but no idea what level.

Since I'm salary and bonus sacrificing, as lisyloo pointed out the money goes into my pension as employers pension contribution and judging by the total for this tax year on my payslip I'm estimating (not having checked exact figures yet) only about 40k will have gone in over the last 3 years.

Hence the confusion now, do I sacrifice even more, which would amount to more than 40k allowance this year because it brings the tax down more and live off the accumulated money which is languishing doing very little except serving as a rainy day fund! Or do I keep the salary sacrifice at the current level and try to get more of the cash into other options, or perhaps even a combination of those?

I'm not sure my best options.

If you're happy to tie the money up till you're 55 (or whatever age they increase the access age to - 57 in 2028 is the current plan I think), then sal sac'ing it into the pension is likely to be a good idea.

HL have a good annual allowance calculator, make sure you include all employer and employee contributions. This works for DC schemes, if you were in a DB scheme in the last few years it's much more complicated.

http://www.hl.co.uk/pensions/interactive-calculators/carry-forward-annual-allowance-calculator

MallyGirl

Snapdragon wrote: »

I think the whole question of, when and by how much, you can vary contributions may be company specific. My company allows me to change as often as I like, I just have to send a form to payroll before payroll cutoff date specifying the % I want to sacrifice, so in theory I could make a change each month since I'm paid monthly, but I don't intend to do that. Just want to figure out the right level and stick with that.

My company also allows me to change SS as often as I like - all online so I don’t even have to fill in a form. For 3 months last year I SS down to nmw so I paid no NI in those months. Over the year I adjusted it to take my gross pay just under 40% tax band.

EdSwippet

zagfles wrote: »

It isn't a "tax relief sanction", it's a specific tax you have to pay if you exceed the AA (whether through employer or personal contributions). You have to declare it on your tax return.

You declare the excess above the annual allowance on your tax return, pay tax on it at your full marginal rate for that year, and then pay tax on it again when drawing from the pension.

While not 'prohibition', this rises to the level of 'deterrent' and edges towards 'punishment'. Calling it a 'sanction' doesn't seem that wide of the mark to me. ;-)

starving_artist

michaels wrote: »

Previously the govt limited it to one change per tax year, now it is up to the employer how often you change sal sac.

Do you know if there is an official source where you can see these rules?

resk

Snapdragon wrote: »

I think the whole question of, when and by how much, you can vary contributions may be company specific.

To back this up, my company allows us to change ongoing contribution percentages in April and October only - we have to fill out a form and send it to them before the 5th of the month (we're paid monthly).

zagfles

EdSwippet wrote: »

You declare the excess above the annual allowance on your tax return, pay tax on it at your full marginal rate for that year, and then pay tax on it again when drawing from the pension.

While not 'prohibition', this rises to the level of 'deterrent' and edges towards 'punishment'. Calling it a 'sanction' doesn't seem that wide of the mark to me. ;-)

The point was the PP seemed confused about how a "tax relief sanction" would apply to employer conts since the employee doesn't get tax relief.

It might be a "sanction", but it's not a "tax relief sanction".

zagfles

starving_artist wrote: »

Do you know if there is an official source where you can see these rules?

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

Good luck!

EdSwippet

zagfles wrote: »

It might be a "sanction", but it's not a "tax relief sanction".

Oh, puh-lease.

zagfles

EdSwippet wrote: »

Oh, puh-lease.

Whoosh...yet again!

I'm not making any sort of judgement of the tax. My point is that calling it as a "tax relief sanction" is misleading and causes confusion as it did above, as the PP wonders how it applies to employer conts.

OK? Get it now?