Salary Sacrifice vs Pay in from Net: End of year difference

MJB

Good afternoon. I'm a relative pension newbie and I also understand that there have been changes in last few years on pensions and tax benefits etc.

I am a higher rate taxpayer (not top rate) and I am trying to work out if there is a real difference between doing a salary sacrifice or paying in from nett. I also have rental income in addition to salary so the rent profit would be taxed additionally.
I have a employer contribution type pension.

ignoring any employer additional contributions on the following:

If for example in round figures, over the year I sacrifice 10k of salary, this means I have 10k in Pension and have saved the tax and NI that I would have been charged on that 10K?

Alternatively If I wait until say march then pay 8k from nett, I end up with 10k in pension and I can also then get 2k Tax relief on the resultant 10k at tax return time- is that right?
so I would have 2k extra take home in the end of year, plus the 2k i didnt pay to get 10K in the pension as per the first option.

Am I missing something here?
As far as I can figure out, the NI saved is not massive, and the pay from nett option gives more flexibility to decide at the end of tax year how much 'spare' cash I actually had to put in.....

Thoughts / advice very welcome please.
Thanks

Lokolo

The difference is the 2% NI, so no, it's not a lot. However there are other tax benefits to salary sacrifice - not going over £100k where personal allowance is reduced (this is key as you say you also have rental income and I have no idea how far into the HRT band you are), child benefit, other benefits that I can't think of.

I personally don't think the "flexibility" outweighs the benefit. My company salary sac pension allows me to change it monthly, so I don't have issues with lack of flexibility.

lisyloo

The difference is basically NI and if you are lucky employers NI (your employer may or may not pass on their NI savings too).

Above 50k employee NI is 2% which you are right isn’t massive (but worth having). If you are contributing any basic rate income the NI saved is 12%.

Your employers NI is 13.8%, I’ve had this pass on in full, none or half.

In order to check you’d need to compare your payslip against your pension.
For example if £1000 gross went from your salary but £1138 got credited to your pension then that would be 13.8 employers NI.
I’d say that’s valuable if they are generous enough to do that.

Albermarle

I am a HRT and have a salsac arrangement . The company keeps all their NI saving . So the sal sac only saves me 2%.
However I make occasional lump sum contributions as well, rather than salsac the full amount, as it is more flexible . I asked my employer about varying salsac each month but can only change once a year.

MJB

Thanks all. Yes- I am similar to Albermarle in that my employer understands salary sacrifice to be a contract for long term, not to be chopped and changed every couple of months.
The additional issue I have is occasional lump sum bonuses, so as these are not known, I can't sacrifice them in advance, so would have to do after the net.
Another question is, as long as I pay any extra amount into Pension in early March say, that definitely gets counted towards contributions for the same tax year?

SMcGill

Another question is, as long as I pay any extra amount into Pension in early March say, that definitely gets counted towards contributions for the same tax year?

An expert will be along shortly I’m sure but I believe the answer is no. The process isn’t immediate, you need to tell HMRC which might be by phone if your contribution was under £10k but over that you likely need to write to them with evidence, then HMRC need to issue a new tax code to your employer and your employer needs to get that before the salary run.

MallyGirl

MJB wrote: »

Another question is, as long as I pay any extra amount into Pension in early March say, that definitely gets counted towards contributions for the same tax year?

yes - as long as they hit the pension in March

Ciprico

...I think your basic premise is wrong...

If you salsac £10k - £10k goes in pension.

If you nett salary £8k into pension, the govt do bulk it up to £10k

... but you have already paid tax on this money, so the £8k you contribute nett has effectively cost you £10k.

Salsac you don't pay tax...
Nett salary HMRC take 20% (income tax), then give 20% (tax relief) when money enters pension

So in both cases you earned 10k before tax, and 10k ends up in pension, you don't gain
an extra 2k paying from net salary..

MJB

123mat123 wrote: »

...I think your basic premise is wrong...

If you salsac £10k - £10k goes in pension.

If you nett salary £8k into pension, the govt do bulk it up to £10k

... but you have already paid tax on this money, so the £8k you contribute nett has effectively cost you £10k.

Salsac you don't pay tax...
Nett salary HMRC take 20% (income tax), then give 20% (tax relief) when money enters pension

So in both cases you earned 10k before tax, and 10k ends up in pension, you don't gain
an extra 2k paying from net salary..

Yes, but I understand that when I do my tax return for that year, I declare the gross pension added in (10K in this instance) and then get 20% tax relief on that, so 2k back again?
I think others agreed with that so is that right?

AnotherJoe

MJB wrote: »

Yes, but I understand that when I do my tax return for that year, I declare the gross pension added in (10K in this instance) and then get 20% tax relief on that, so 2k back again?
I think others agreed with that so is that right?

No! When you do your tax return, you should not enter your company pension contributions.
If you do you would indeed get "double bubble" until it was discovered and you were fined.

Do not include payments you make to your employer’s pension scheme which are deducted from your pay before tax or payments made by your employer
SA 100 Page TR4

MJB

AnotherJoe wrote: »

No! When you do your tax return, you should not enter your company pension contributions.
If you do you would indeed get "double bubble" until it was discovered and you were fined.

But isn't that the salsac bit, not the 8K i'd have paid from net?