Waive bonus or recurring salary sacrifice. Any tax implications?

chssvl

Hi all. About 20% of my yearly salary is paid up as a one-off bonus in the middle of the year. Early in the year there was the option to say whether we wanted the bonus to be waived and sent partially or in full to the company's pension scheme, but I completely missed the deadline. My intention was to waive the full bonus as I still have a significant shortfall in my pension pot given the limited contributions I was able to make until recently and, especially, given recent rumours about the end to the pension relief.

I've ask for leniency, but the company is being completely inflexible. They've suggested that I could instead make one-off contributions via salary sacrifice from my monthly salary over the next few months, but I'm just wondering if there are tax implications to doing this.

So, for example, if over the next few months I make one-off payments as salary sacrifice such that in the end I would have transferred the same amount as if I had waived the entire bonus, would there be any difference for tax purposes? My hunch is no as total income after tax and pension contributions for the current tax year would be identical in both scenarios. Also worth noting that I would not come anywhere close to the £40k yearly tax-free pension allowance under either scenario

Thanks in advance

AnotherJoe

There's nothing "special" about your bonus, its just money. It doesn't have a tag on it that says "bonus" whereas your normal salary has little "normal salary" tags, and HMRC can see the difference.

So do what the company suggests and dont be so tardy next time

p.s. you said the company was inflexible but i think they've been very flexible allowing you to one-off salary sacrifice each month.

Marcon

People do love to criticise their employers, especially when they themselves are responsible for their own problem! You aren't asking for 'leniency', you are asking for special treatment at a time when companies and their administration systems are at breaking point. Try appreciating what they've offered you and being grateful they will accommodate that.

Not only is the tax position unaffected, but you might (depending on how much you earn) also see a saving in NI if you take the month by month route rather than sacrificing your whole bonus in one go.

chssvl

Thanks for the quick reply!

Yes, I know it's actually my fault. I've been in the company for less than 18 months and I still haven't learned the exact timings of these different deadlines. Somehow I assumed that the opportunity to waive it would be closer to the actual bonus payment date. Lesson learned - never assume...

cloud_dog

My company (apparently) are unable to deposit my annual bonus in to my pension, because they don't know how much it will be; ho hum.  So, I've simply calculated what it will probably be and spread it evenly over the year.  

MaxiRobriguez

Yes it's fine to up your contributions monthly. My company won't let me pay my bonus in salary sacrifice so I used to estimate what it would be, split across the year and use that as additional sacrifice.

However, now I just sacrifice as far as I'm allowed (minimum wage) and use the bonus money I get as cash flow for bills and living, rather than sacrificing. Slightly more risky but means more money avoiding income tax. 

Anonymous101

As others have said just up your monthly contributions to suit. I've always found pushing up the pension contributions to be beneficial, a little pressure is good for the first few months then you soon get used to it. The bonus will come in handy for one off purchases like holidays or cars. If it doesn't happen you're only losing a cherry off the cake meanwhile those monthly pension contributions are making that cake taste better all the time!