Question re pension contributions carry forward

jamesd

It's not likely that this lump sum can be paid by salary sacrifice so contact work or the pension to see how she can do it.

If she had planned it earlier she probably could have used salary sacrifice but it's now too late, with only March pay available and maybe too late to get that changed.

I assume that she'll be told how to make an "employee contribution" which will have 25% added to it in the pension under the "relief at source" rules. Salary sacrifice contributions are always "employer contributions" and no 25% is added to those.

So far as HMRC goes, she can call them and say with great care:

"In 2018-19 I made pension contributions of two types. The first was by salary sacrifice, no additional relief is available. This call is about the second, which was by an employee contribution to a scheme operating relief at source on which I can receive additional higher rate relief by HMRC increasing my basic rate band by the nn,nnn Pounds gross that ended up in the pension including the relief at source part. I expect this to be a one-off claim because the contribution was to use carried forward 2015-16 annual allowance and I'm now using salary sacrifice for my full ongoing annual allowance. How should I claim the refund?"

Because it's a one-off event they may just take her details and pay the refund to her bank account with no more but they could go with a tax return for one year or telling her to sign up for self-assessment. She's quite a likely SA candidate because of her adjusted income and she should have full details of that calculation available so she can give them in the call if asked.

If a tax return is needed she should say nothing about salary sacrifice contributions because they are already included in the employment PAYE section. Just give the gross including 25% uplift employee contribution lump sum amount.

However they do it she can anticipate the money arriving in her account in a month or so, perhaps a couple of weeks at a quiet time of year. It's pretty low hassle except for unfamiliarity.

zagfles

jamesd wrote: »

It's not likely that this lump sum can be paid by salary sacrifice so contact work or the pension to see how she can do it.

If she had planned it earlier she probably could have used salary sacrifice but it's now too late, with only March pay available and maybe too late to get that changed.

I assume that she'll be told how to make an "employee contribution" which will have 25% added to it in the pension under the "relief at source" rules. Salary sacrifice contributions are always "employer contributions" and no 25% is added to those.

So far as HMRC goes, she can call them and say with great care:

"In 2018-19 I made pension contributions of two types. The first was by salary sacrifice, no additional relief is available. This call is about the second, which was by an employee contribution to a scheme operating relief at source on which I can receive additional higher rate relief by HMRC increasing my basic rate band by the nn,nnn Pounds gross that ended up in the pension including the relief at source part. I expect this to be a one-off claim because the contribution was to use carried forward 2015-16 annual allowance and I'm now using salary sacrifice for my full ongoing annual allowance. How should I claim the refund?"

Because it's a one-off event they may just take her details and pay the refund to her bank account with no more but they could go with a tax return for one year or telling her to sign up for self-assessment. She's quite a likely SA candidate because of her adjusted income and she should have full details of that calculation available so she can give them in the call if asked.

If a tax return is needed she should say nothing about salary sacrifice contributions because they are already included in the employment PAYE section. Just give the gross including 25% uplift employee contribution lump sum amount.

However they do it she can anticipate the money arriving in her account in a month or so, perhaps a couple of weeks at a quiet time of year. It's pretty low hassle except for unfamiliarity.

Why are you assuming the works pension operates RAS? Most don't, they use "net pay" for employee conts, not RAS. In which case the OP's contribution is likely to be a pure gross contribution and full tax relief needs claiming on a tax return. There is a separate box on the tax return for exactly this.

OP - see page 10 of https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/687369/sa150-notes_2018.pdf

If it's RAS it'll go in box 1, if "net pay" it'll go in box 3
("net pay" is where employee contributions are normally taken before tax so full tax relief is given in the payslip, no tax relief is claimed by the scheme)

BoxerfanUK

Thanks Jamesd that's very helpful.

As you say, like an idiot I should have thought about it 12 months ago and we could have substantially increased her SS amount, but hey we didn't, big lesson learned there to think ahead better.

Her employer has said she can sacrifice all her salary this month if she wants and will also get 10% NI employer contribution added so after factoring out what she was already due to SS this month at least we could utilise just under 10K of it which is better than nothing.

Will investigate other options asap.

Thanks again.

jamesd

zagfles wrote: »

Why are you assuming the works pension operates RAS? Most don't, they use "net pay" for employee conts, not RAS.

Because RAS is routinely used including by all the pensions offered to me at work and this is a salary sacrifice scheme.

I don't have data on the relative commonness of RAS or net pay arrangements but tend to think of net pay as an old fashioned way of doing things and adding pension complexity for employees vs rather than for salary sacrifice arrangements.

Of course it could be net pay.

jamesd

BoxerfanUK wrote: »

Her employer has said she can sacrifice all her salary this month if she wants and will also get 10% NI employer contribution added so after factoring out what she was already due to SS this month at least we could utilise just under 10K of it which is better than nothing.

Worth doing, then.

Note that employment law prohibits her employer from paying her less than minimum wage in any pay period so in theory they shouldn't let her sacrifice it all, just the bit above minimum wage. She's the only one who might complain about it.

jamesd

Since her employer seems accommodating and you want to plan ahead, next tax year she could seek to pay her 40k over the smallest possible number of pay periods. This can save her about £1,000 in NI.

NI is calculated individually for each pay period, not annually. If she made even contributions she'd save 2% employee NI because all of the sacrifice would be of pay above £3,863 a month. If she concentrates it instead she can get some into the range where employee NI is 12%. Given her pay, four months sacrificing down to minimum wage or maybe five would maximise the gain.

Assuming 21.7 8 hour days a month minimum wage would be £1,425. She'd shift 3863 - 1425 = 2483 to the 12% zone and save 10% of that, £248.30 a month. For four months. £975.20 saved vs even contributions.

zagfles

jamesd wrote: »

Because RAS is routinely used including by all the pensions offered to me at work and this is a salary sacrifice scheme.

I don't have data on the relative commonness of RAS or net pay arrangements but tend to think of net pay as an old fashioned way of doing things and adding pension complexity for employees vs rather than for salary sacrifice arrangements.

Of course it could be net pay.

Just because a scheme offers sal sac doesn't make it more likely to be a RAS scheme. All my works schemes I've had in recent years were net pay and they also offered sal sac.

Regardless of the relative proportions, the OPs scheme could be either so it shouldn't be assumed one way or the other.

zagfles

jamesd wrote: »

Worth doing, then.

Note that employment law prohibits her employer from paying her less than minimum wage in any pay period so in theory they shouldn't let her sacrifice it all, just the bit above minimum wage. She's the only one who might complain about it.

They'll be making a mistake if they allow it. HMRC do audits on NMW compliance.

zagfles

jamesd wrote: »

Since her employer seems accommodating and you want to plan ahead, next tax year she could seek to pay her 40k over the smallest possible number of pay periods. This can save her about £1,000 in NI.

NI is calculated individually for each pay period, not annually. If she made even contributions she'd save 2% employee NI because all of the sacrifice would be of pay above £3,863 a month. If she concentrates it instead she can get some into the range where employee NI is 12%. Given her pay, four months sacrificing down to minimum wage or maybe five would maximise the gain.

Assuming 21.7 8 hour days a month minimum wage would be £1,425. She'd shift 3863 - 1425 = 2483 to the 12% zone and save 10% of that, £248.30 a month. For four months. £975.20 saved vs even contributions.

Other thing to note is that benefits don't count for NMW, so if she has any taxable benefits then they won't count towards the NMW

Workerbee999

Can’t she open a SIPP and put in whatever can’t go through March payroll to make use of the full carry forward amount?