Sal sac in April

mpension

Hi All,

I appreciate any advice in advance.

I read something on here that suggested you shouldn't Sal sac in april if you can avoid it, but I didn't quite understand why.

I hopefully get a bonus in April and id like to use that to boost the amount going into my pension (e.g. keep my current % going in which will increase because of the bonus)

Can anyone here please remind me why it is a problem doing this in April?

Regards

BoxerfanUK

I'm not aware of any reason why you shouldn't, although bear in mind that salsac in April pay usually goes into pension in May when the company runs it's payroll, at least my OH's company does.

jamesd

The general issue with April that comes to mind is a March payment that might normally be made in early April and could end up in an undesirable tax year.

Higher rate tax payers save more employee NI by concentrating their sacrifice into as few months as possible. The NI gain is because NI is calculated for each individual pay period so sacrificing down to minimum wage maximises the amount of 12% employee NI that's saved.

With a bonus in April it could be best to do low sacrifice in that month because it'll be harder to get down to minimum wage to maximise the NI gain.

Bemma

I think it might have been a thread I started where this came up. As Jamesd says above. This is to maximise NI savings. I earn 50k+10k bonus (roughly), the bonus is paid in April, so in April I would save 2% NI + 40% tax as I have a very large April pay. For the other 11 months I save 12% NI + 40% tax as I have a smaller monthly pay amount (NI), but my annual salary is still higher rate level (tax). So for me it's optimal to sal sac the other 11 months and not in April.

CookieMonster

the April item in a previous thread was specifically related to the timing of a bonus for that particular individual.
It is not a general rule.

mpension

Many thanks for the responses.

I have just checked my pay dates for the year. I earn about 98k and the bonus is about 15k. I currently Sal-sac about 85% (have not maxed 40k allowance last three years). My bonus is actually paid in March.
In order to help with NI, should i still reduce sal-sac from April?

jamesd

In your case it's March when you should sacrifice little because that's when your bonus is paid. Just enough for full employer match that month.

To maximise your NI gain you should try to get as close to minimum wage as you can in the months when you're sacrificing, doing as many as possible at minimum wage.

The maximum potential employee 25 and older saving is twelve months of 10% (12% - 2%) of the £50k 2% threshold and the national minimum wage of £8.21 for say 40 hours a week. £17076.80 a year. So 10% of £32,23.20 which is £3,292.32. More possible for those who do less than 40 hours a week.

Looks as though you might be sacrificing to below minimum wage because 15% of £98k (I assume excluding bonus) is £14.7k. That'd be 34.4 hours a week, 14700 / 8.21 / 52. Or 36.7 hours on the 21-24 minimum wage.

HMRC do apparently check minimum wage compliance of employers sometimes.

If you have more annual allowance carry-forward than you can use, say because this is your last year of work, you could do maximum March sacrifice as well. If not you can benefit more from your remaining carry-forward by using it in other months or years. Though with 40k this year and up to 40k from 2016-17 to use or lose, that might take some March sacrifice as well to use it all this year, depends on the 2016-17 usage.

For convenience I've used annual numbers to calculate estimated savings but the NI is really calculated per pay period, normally month or week.

mpension

Thank you James - I guess I was just thinking about maximising the contributions with the bonus, without understanding the NI effects.

Appreciated