Salary Sacrifice Scheme - How do you reclaim? Should I?

Joey122

I currently am earning a salary and have decided that I will set aside about 55 pounds a month which is a salary sacrifise.

I m told that because I am a higher rate tax payer then this will only cost 27 pounds. My question is that I am starting this scheme this months payroll and will continue for 18 months.

Is it right to say that I need to fill in a tax return this year to make sure this gets calculated properly? I say this becuase the amount of tax you are charged is broken up over twelve months so if in the middle of the tax year this changes then the amount of tax paid will always be too much.

Is this correct?

Thanks

fengirl_2

If your salary sacrifice starts in November, you will earn £55 less in November and your PAYE deductions will adjust themselves accordingly, and carry on each month. There would be no retrospective adjustment required.
If you backdate your sacrifice to April, then 7 mths x £55 will be deducted from your pay and, again, PAYE will take account of this.
PAYE is a cumulative scheme (usually), so, unless you are on a week 1 code, adjustments always take account of the whole year.

Joey122

Fen girl,

Are you sure about this?

In particular "PAYE deductions will adjust themselves accordingly, and carry on each month".

I was always led to believe that was not the case. If it is then under what circumstances would you expect a tax return to be needed for PAYE scheme?

Joey122

Or put another way my understanding is:

PAYE assumes your tax status does not change over the year and distributes your payment and tax relief over the entire twelve months - If your tax salary changes you can be sure that your tax payment is incorrect.

WHat am I missing here?

LittleVoice

PAYE uses your tax code. For most of us, tax codes do not change during the year.

If the code remains the same, in the first month when pay goes down, tax will be lower (if a large reduction in monthly pay occurred, there could be a tax rebate). This is because, more tax will have been taken in the earlier months because it would have been anticipated that pay would continue at the same rate.

In the following months, the reduction will not be so great.

Debt_Free_Chick

Joey122 wrote: »

Fen girl,

Are you sure about this?

In particular "PAYE deductions will adjust themselves accordingly, and carry on each month".

I was always led to believe that was not the case. If it is then under what circumstances would you expect a tax return to be needed for PAYE scheme?

Salary sacrifice is a pay cut. You'll get £55 less in gross pay. As tax & NI is calculated on your pay - if your salary is less, your tax & NI will be less.

The £55 pay cut is retained by your employer and then paid by them to whichever benefit you've chosen (the one you're taking the salary sacrifice for .... pension?).

So - you get paid £55 less, pay less tax and less NI

Your employer has an extra £55

Your employer uses that £55 to pay to the benefit provider.


Tax deduction under PAYE is cumulative. The tax tables show the tax you should have paid in the year to date, based on your taxable pay, for the year to date. If you've paid more tax in the year to date than you should have had, this month's tax will correct that.

NI is not cumulative in the same way - but you're only likely to overpay NI if you have more than one job.

Joey122

What about bonuses? Do they normally need tax reclaimed?

Thanks

LittleVoice

Joey122 wrote: »

What about bonuses? Do they normally need tax reclaimed?

Thanks

The following response was written without taking into account the earlier link with salary sacrifice. Sorry!

When you are paid a bonus in your salary for that month, tax will be deducted. I don't know where tax reclaiming comes into this.

AFAIK, the only reason to get a tax refund (not the same as reclaiming) relating to a bonus which has been paid is if it is an enormous bonus and the following month the normal PAYE system has to repay over-paid tax not covered in the then cumulative amount of tax due.



If you leave soon after receiving the bonus and do little or no further paid work in the tax year, then there would be an opportunity to reclaim some tax as it would have been overpaid for the year.

Debt_Free_Chick

Joey122 wrote: »

What about bonuses? Do they normally need tax reclaimed?

Thanks

As you haven't received it, you won't have paid tax on it (nor NI) so there is no tax deduction to reclaim.

To summarise ..... salary and bonus sacrifice means that that some of your pay/bonus does not get paid. If it doesn't get paid, then no tax is deducted. If no tax is deducted, there's no tax to reclaim.

Instead of paying salary/bonus, the employer pays for something else instead.

Think of it as a game of swap - your employer says "I'll swap you £1,000 of salary for a payment of £1,000 into your pension instead"