Salary Sacrifice Question

ffacoffipawb

You are not allowed to salary sacrifice below the minimum wage of £8.21 per hour for age 25 and over.

How does this work in practice?

For a 16 hour week, is this £8.21 x 16 x 52 for the annual equivalent?

This is £6,831

If my earnings are A (salary) + B (car allowance, taxable not pensionable) then for salary sacrifice purposes what is measured against the minimum wage?

Is it

(1) A - Amount Sacrificed > 6831

or

(2) A + B - Amount Sacrificed > 6831

Obviously if I can include B in the calculation against minimum wage then the maximum salary sacrifice can be higher

Ignore the issue with effective loss of tax relief on salary sacrifice below the personal allowance.

Thanks

Marcon

How it works in practice depends on how your employer implements it. You need to talk to them.

https://www.gov.uk/minimum-wage-different-types-work may be useful reading.

Linton

The NMW is tested against the hours worked in any pay period. So if you are paid monthly then its your actual wage in that month divided by the hours in the month.


It would appear that a car allowance is not included in the calculation. Google will find a lot of information. For example, talking about things not counting towards the NMW:

Any allowances or payments that are not attributable to the employee’s performance, for example London weighting or an on call allowance. However, if these payments are consolidated into standard pay, they will count towards the National Minimum Wage.

Ngozi

The percentage you sacrifice is literally from the "Salary" column on your payslip.

I do shift work, have some holiday supplement payment, lose money for Bike to Work scheme etc... and none of that is factored into the % that is put aside for pension

lisyloo

You can put more into your pension from net income and not use salary sacrifice.
You’ll get tax relief but not NI.

I receive dividend income in addition to my PAYE salary so I can see why this may be an issue for some.

Dazed_and_confused

In some circumstances you can still benefit from "tax relief" even if you have a low salary and salary sacrifice doesn't immediately seem to bring any income tax benefit.

Principally you need to have other taxable income which means you are paying tax overall.

So if you had say salary of £10k and sacrificed down to £8k you may not see any tax relief on the income from that employment. But overall you are only taxable on £8k not £10k so it might still save you tax overall.

Dazed_and_confused

Salary sacrifice with a low salary and no other income can also being more subtle tax benefits.

You might have taxable salary of £12,500 and pay no tax. Sacrifice down to say £10,000 and you save a bit of NI but no tax. But if you are married and spouse isn't deemed to be a higher rate payer (but is paying at least £250 in tax) you could then apply for Marriage Allowance. You still pay no tax but spouse gets £250 reduction in their tax liability.

ffacoffipawb

Thanks all, guess the answer is (1) then.