Salary Sacrifice

Dazed_and_C0nfused

There is no pension tax relief or HMRC top up because the employee doesn't contribute anything to the pension, it is the employer who contributes.

The employee benefits by not having the salary to pay tax and National Insurance on in the first place.  So you could avoid paying 20% or 40% tax and either 12% or 2% National Insurance.  And some employers also contribute the employers National Insurance they save as well from paying a lower salary.

As there is no pension tax relief due there is nothing to tell HMRC about or claim from them.

Linton

Mick70 said:

noticed the comment that the govt does not contribute to the pension - no tax relief ?  So does that mean no govt top up and unable to claim back 20% on tax return?   

Will salary sacrifice get a 40% tax payer more into his/her pension ??

The government does not contribute to pensions - it merely returns the tax already paid if you have contributed using taxed income.  If you salary sacrifice your pay is reduced so you pay less tax, possibly bringing you into a lower tax band -  you dont pay tax on income you have not received.  SS and an employee pension contribution are the same as far as income tax is concerned.

The financial benefit from Salary Sacrifice is a redution in your NI (NI is charged on gross income) and possibly a share in the reduction in your employers NI.

CSL0183

£1039 x 12 = £12,468pa.
Personal Allowance is £12,500 which means she pays no income tax. Not fully clued up on what happens in this scenario but if you pay no income tax, how can you then claim tax relief? Also, if you SS, I dont think you can take yourself below minimum wage.

Albermarle

CSL0183 said:

£1039 x 12 = £12,468pa.
Personal Allowance is £12,500 which means she pays no income tax. Not fully clued up on what happens in this scenario but if you pay no income tax, how can you then claim tax relief? Also, if you SS, I dont think you can take yourself below minimum wage.

By a quirk , you can claim tax relief on earned taxable income , even if you have not actually paid any tax .
So of you earn £10K , you can contribute £8K and get £2k Tax relief, even though you have not paid any .
Not sure how this would work with a SS arrangement though , presumably it would not ?

german_keeper

Thanks to all for comments.

I am beginning to wonder if this isn't salary sacrifice, maybe the HR dept made a mistake in their communication. Her rate of pay multiplied by hours worked works out at the gross pay quoted on the payslip so there doesn't appear to be any salary sacrificed. The NI shown on the payslip seems correct to me.The NEST account contributions this year show £211.48 from her, £52.89 tax relief,and employer £158.89. No reference to anything else. Previous years the same % wise although obviously diffferent amounts. 

CSL0183 is correct that she is a non taxpayer so she is getting tax relief added on the small amount she contributes despite not paying tax. We are going to give it a go and see what happens. 
 

Albermarle

The NEST account contributions this year show £211.48 from her, £52.89 tax relief,and employer £158.89

It is clearly not salary sacrifice as you say . The official term for this way of paying contributions is 'Relief at Source'

In English means that employees contributions are taken from net ( after tax ) pay and the pension provider adds back the tax relief automatically ( and claims it back from HMRC behind the scenes )

Thrugelmir

german_keeper said:

I am beginning to wonder if this isn't salary sacrifice, maybe the HR dept made a mistake in their communication. Her rate of pay multiplied by hours worked works out at the gross pay quoted on the payslip so there doesn't appear to be any salary sacrificed. The NI shown on the payslip seems correct to me.The NEST account contributions this year show £211.48 from her, £52.89 tax relief,and employer £158.89. No reference to anything else. Previous years the same % wise although obviously diffferent amounts. 

Employees are often allowed to pay a higher rate of contribution than the default the company sets. Not a salary sacrifice scheme. 

Paul_Herring

Mick70 said:

noticed the comment that the govt does not contribute to the pension - no tax relief ?  So does that mean no govt top up and unable to claim back 20% on tax return?  

There's no tax relief due, because no tax is taken off to start with, unlike relief at source

Will salary sacrifice get a 40% tax payer more into his/her pension ??

They sacrifice a pound out of pre-taxed income, and a pound goes into their pension.

With relief at source, that pre-tax pound is reduced by 42% (40% IT, 2% NI) to 58p. Putting that 58p into a pension would attract 14.5p tax relief (the first 20%,) and they claim a further 14.5p (the second 20%) off the tax man, so they get 72.5p in their pension and 14.5p in their pocket.

Albermarle said:

Not sure how [below personal allowance] would work with a SS arrangement though , presumably it would not ?

It doesn't work, or rather it would not benefit the employee; while the wages at that level are taxable, they aren't actually taxed (or NI'd below £8,600) so there'd be little to no difference between the gross figure and what would be received net. It'd be more beneficial to use relief at source in that circumstance and get the 25% 'tax relief.'