Salary Sacrifice Query

Snapdragon

Am hoping someone can have a look over my thinking and confirm whether I'm on the right track or have made any obvious mistakes.

Since the beginning of this tax year I've been salary sacrificing into my pension 45% (employer adds another 5% which is their max contribution). I also sacrificed my annual bonus in May.

I'm thinking of increasing my sacrifice to 100% for the rest of the tax year and living off cash in my Santander account. I don't think the company has any upper sacrifice level restriction.

1) I'm aware there is a "have to earn at least minimum wage" requirement but don't know how exactly that works. I am wondering since I've earned at least that, in the first 7 months, can I now sacrifice everything?

2) I'm also aware of the £40,000 a year limit to pension contributions, which I'll exceed this year if I increase to 100% sacrifice.
I'm playing catch up having only put about £40,000 into pension in total over the last 3 years, so believe I have plenty of carry forward available. Do I have to do anything, like notify anyone about using the carry forward, is it automatic?

3) Does the 100% sacrifice mean no further tax and national insurance and will I have in fact paid too much tax given payroll divide the personal allowance across monthly payslips?

4) The other rule about you can only pay in the amount you earn in a year. Is it therefore the Gross Pensionable figure shown on my payslip that I can put in?

That presumably, by the end of the year would equate to my normal annual salary figure? So since to date I've only been putting in 45% I'd be well within the gross pensionable figure, in regard contributions?

I have separate emergency fund which I wouldn't be dipping into to support this. So does this strategy make sense?

Is it the most efficient way, given I want to avoid higher rates of tax and want to get as much as possible into my pension, to give it a boost?

Would appreciate any thoughts on this, thanks.

Linton

Snapdragon wrote: »

Am hoping someone can have a look over my thinking and confirm whether I'm on the right track or have made any obvious mistakes.

Since the beginning of this tax year I've been salary sacrificing into my pension 45% (employer adds another 5% which is their max contribution). I also sacrificed my annual bonus in May.

I'm thinking of increasing my sacrifice to 100% for the rest of the tax year and living off cash in my Santander account. I don't think the company has any upper sacrifice level restriction.

1) I'm aware there is a "have to earn at least minimum wage" requirement but don't know how exactly that works. I am wondering since I've earned at least that, in the first 7 months, can I now sacrifice everything?

The Minimum Wage is defined as a wage/hour, so I doubt whether you can go to 100% salary sacrifice. However I could be wrong.

2) I'm also aware of the £40,000 a year limit to pension contributions, which I'll exceed this year if I increase to 100% sacrifice.
I'm playing catch up having only put about £40,000 into pension in total over the last 3 years, so believe I have plenty of carry forward available. Do I have to do anything, like notify anyone about using the carry forward, is it automatic?

You do not need to inform anyone about carrying forward Pension Allowance. HMRC will check in due course.

.

3) Does the 100% sacrifice mean no further tax and national insurance and will I have in fact paid too much tax given payroll divide the personal allowance across monthly payslips?

Yes to too much tax. NI is calculated on a month by month basis rather than annually so wont be affected. You may need to check that you havent put yourself below the NI limit, if you need the NI years for your State Pension.

4) The other rule about you can only pay in the amount you earn in a year. Is it therefore the Gross Pensionable figure shown on my payslip that I can put in?

That presumably, by the end of the year would equate to my normal annual salary figure? So since to date I've only been putting in 45% I'd be well within the gross pensionable figure, in regard contributions?

No - What the Gross Pensionable figure means is dependent on the rules of your pension scheme. Salary Sacrifice turns part of your gross income into employers pension contribution, so you need to calculate your earnings by subtracting the SS from your nominal salary. Your SS doesnt count against the earnings limit since it is an employers contribution, not a personal one.

I have separate emergency fund which I wouldn't be dipping into to support this. So does this strategy make sense?

Is it the most efficient way, given I want to avoid higher rates of tax and want to get as much as possible into my pension, to give it a boost?

Since your SS doesnt count against your earnings you could make additional personal pension contributions, perhaps into a SIPP, and get the tax rebate despite not paying tax. This assumes the £40K total limit can be overcome with carry forward of the allowance.

Albermarle

Although you can use the last two years unused annual allowance to go over the £40K in this year , as far as I know you still can not go above what your actual taxable earnings are this year .

Paul_Herring

You can only sacrifice down to National Minimum Wage (or whatever they're calling it this week.)

At £7.83, and assuming 37.5 hrs per week over 52 weeks, that's £15,268.50 this tax year (2019/20 it will work out to £16,009.50)

So your gross wage (after sacrifice) should be at least this at the end of the tax year. That will be the figure you enter into your self assessment.

Incidnetally, the Lower Earnings Limit (LEL, the minimum you're required to earn to get NI credits) is £116/w, which works out to £6,032. Since that's above the NMW, this shouldn't concern you.

WRT carry-forward, you need to keep your own records to make sure you don't breech limits there, but beyond sticking your contributions on your self assessment, you need not do anything more to inform HMRC.

---

What you could do with that remaining £15K is put 80% of it into a pension fund after tax, and get the 20% rebate (even though £11,850 wouldn't have had income tax deducted to begin with.)

zagfles

Snapdragon wrote: »

Am hoping someone can have a look over my thinking and confirm whether I'm on the right track or have made any obvious mistakes.

Since the beginning of this tax year I've been salary sacrificing into my pension 45% (employer adds another 5% which is their max contribution). I also sacrificed my annual bonus in May.

I'm thinking of increasing my sacrifice to 100% for the rest of the tax year and living off cash in my Santander account. I don't think the company has any upper sacrifice level restriction.

1) I'm aware there is a "have to earn at least minimum wage" requirement but don't know how exactly that works. I am wondering since I've earned at least that, in the first 7 months, can I now sacrifice everything?

I doubt it. I think it uses NI'able earnings, which work on a pay period basis. In any case, it's unlikely to be a good idea as you get no NI relief if you go below the primary threshold (£702 a month if you get paid monthly) and if you go below the LEL you don't get conts towards state pension etc (though you might have enough this year already)

2) I'm also aware of the £40,000 a year limit to pension contributions, which I'll exceed this year if I increase to 100% sacrifice.

Remember to include employers contributions in pension input calculations.

I'm playing catch up having only put about £40,000 into pension in total over the last 3 years, so believe I have plenty of carry forward available. Do I have to do anything, like notify anyone about using the carry forward, is it automatic?

No, just keep records in case HMRC query it. You'll get a letter of the pension provier and they'll inform HMRC, but you don't need to do anything other than keep records so you can prove to HMRC you had enough carry forwards available.

3) Does the 100% sacrifice mean no further tax and national insurance and will I have in fact paid too much tax given payroll divide the personal allowance across monthly payslips?

Yes, you'd get negative tax (ie a rebate) in your payslip assuming you have a normal (cumulative) tax code. But no NI rebate as that works on a pay period basis

4) The other rule about you can only pay in the amount you earn in a year. Is it therefore the Gross Pensionable figure shown on my payslip that I can put in?

Sal sac means it's techincally employers contributions, so you don't need to worry about this. You only need worry about the 100% of earnings rule if you also contribute yourself eg by other means to the same pension or to another pension eg to a SIPP.

Snapdragon

Thanks Linton

Linton wrote: »

You may need to check that you haven't put yourself below the NI limit, if you need the NI years for your State Pension.

I think when I checked state pension it said I had 39 years already so I'd guess I'm alright, but best to ensure this year counts as well so need to find out how much would be minimum I'd need to pay.

Having googled I found "For 2018-19, the National Insurance threshold is £8,424 a year (up from £8,164 in 2017-18). If your earnings are below the earnings threshold, you pay no National Insurance contributions."

So if I understand that statement correctly having earned more than £8424 (after the 45% sacrifice) and paid £2000+ in NI so far this year, then this year will count.

Snapdragon

Paul_Herring wrote: »

You can only sacrifice down to National Minimum Wage (or whatever they're calling it this week.)

At £7.83, and assuming 37.5 hrs per week over 52 weeks, that's £15,268.50 this tax year (2019/20 it will work out to £16,009.50)

So your gross wage (after sacrifice) should be at least this at the end of the tax year.

That's what I meant by I've already earned the minimum wage for this year. Since to-date I've only been sacrificing 45%, my gross to-date is considerably more than £15268.50, which is why I was guessing I didn't need to be paid anymore and everything could be sacrificed to the pension.

However the feedback suggests this isn't correct. I may still need to earn a minimum level every month?

Thrugelmir

Snapdragon wrote: »

However the feedback suggests this isn't correct. I may still need to earn a minimum level every month?

An employer is duty bound to ensure that the NMW is maintained.

AlanP_2

I think NMW is on a pay period basis otherwise it could be abused.

For example Job 1 - employer pays you £3k a month for 6 months
Job 2, with same employer, - pays you £100 a month for 6 months


You will have earned above NMW over 12 month period but been paid well below NMW for last 6 months of the year.

Snapdragon

Thrugelmir wrote: »

An employer is duty bound to ensure that the NMW is maintained.

What is taken into account when calculating NMW?

I started thinking of doing the additional salary sacrifice because I'm due a bonus next month which can't be sacrificed and I didn't want to lose a big chunk of it to tax, hence planned to take the bonus instead of salary. Will that meet the NMW criteria?

I also get a monthly paid allowance (which isn't sacrificed), is that included in the total for NMW calculation?

So minimum £15,268.50 / 12 months = £1,272.37 still needed every month for the rest of the year?

Can that be in the form of the allowance and a bit of salary? Could I sacrifice to a % that leaves enough salary plus allowance to total about £1300 pretax/NI to meet the criteria?

So confused.

Paul_Herring

which can't be sacrificed

What reason has been given?