Is there a maximum reduced NI contributions via Salary Sacrifice limit?

nkb21

Is there a maximum amount on which I benefit from reduced NI contributions if I’m salary sacrificing? 

Since the beginning of the tax year, I’ve been sacrificing 75% (c.£4.2k p.m) of my salary into my workplace pension (the remaining 25% ensures I am paid over national minimum wage).  With employer contributions added, that increases to c.£4.8k p.m.  As I already have a DB pension paying out which uses up my entire personal allowance, the remainder of my salary has been taxed at 20% and the relevant NI deductions applied.

This month, though mine and my employers pension contributions have stayed the same, as has my taxable pay and therefore tax deductions the £4.2k I’ve salary sacrificed, has not been excluded from NI calculations.  Consequently, my monthly NI deductions have gone from under £80 last month , up to over £430 this month, leaving my net pay about £350 less than prior months.

I’m aware of the £40k annual allowance for tax efficient pension contributions and I’ll exceed that this year but I have almost the same amount available as carry forward from last year so I’m fine from that perspective.  However, is there a maximum amount of salary I can sacrifice each year, on which I can benefit from reduced NI deductions?  My employer did trigger an email to me to advise my net pay was going to be different this month but didn’t explain why.  Now I’ve seen my payslip and can see what’s changed, I have written back to them asking for confirmation why this has happened but whilst I wait for the response (which could be some time based on previous experience), I thought I’d pick the brains of the community for some insight.

Dazed_and_C0nfused

Are you sure they haven't increased your salary to the original amount, then treated the pension contribution as having been made by you and applied the "net pay" method?

If you post details from the last two payslips it should be obvious as your taxable pay will be much more than you would expect this month.

Have they changed payroll software or used a new payroll agency this month?

nkb21

The differences on this months payslip compared to last months are:

1.       Gross Pay has increased by my salary sacrificed pension contribution. 

2.       NI deductions have increased by c.£350

3.       Net pay has reduced by c.350

My Taxable pay has remained the same hence my tax deducted figure has also remained the same.

Don’t think there’s been any change in payroll software or payroll agency.  As I said, they did email me to say my net pay was going to change so it’s something they intended to do.  Its why, that’s baffling me atm.

Dazed_and_C0nfused

My Taxable pay has remained the same hence my tax deducted figure has also remained the same.

Can you give the taxable the following details,

Taxable pay to date on September payslip

Taxable pay for October

Taxable pay to date on October payslip

Taxable pay for November 

Taxable pay to date on November payslip

And the National Insurance category letter from the October and November payslips if shown.

nkb21

Here's the info:

Taxable pay to date on September payslip  8750.04

Taxable pay for October  1458.34

Taxable pay to date on October payslip 10208.38

Taxable pay for November   1458.34

Taxable pay to date on November payslip  11666.72

 

And the National Insurance category letter from the October and November payslips if shown. A

Dazed_and_C0nfused

It does look like they they have changed the pension contribution from an employer contribution (salary sacrifice) to a personal contribution from you (net pay).

Net pay contribution is only deducted from taxable pay and doesn't get deducted for NI purposes.

£1,458.34 + £4,200 = £5,658.34.

National Insurance due on £5,658 is £434.83.

Sounds like you need an explanation from your payroll department.

nkb21

OK many thanks for the info. Lets see what they come back with. 

Dazed_and_C0nfused

nkb21 said:

OK many thanks for the info. Lets see what they come back with. 

Some payslips have separate earnings figures for National Insurance, do yours have this?

nkb21

No I'm afraid it doesnt.

Alexland

Maybe they are limiting the company sal sac contributions at £40k with anything above that as an employee contribution? Employer contributions can be used for carry forward so maybe it's a software or policy limitation?

nkb21

Eventually got an answer.  

Despite me ensuring that after sacrificing salary for pension, my remaining salary was above the National Living Wage when calculating £8.72 x 35 (hours per week) x 52 (weeks per year), seemingly my employer calculates this on a monthly basis depending on the different number of working days there are in each month.  I was (and therefore they were) getting close to breaching this rule in months where there is a low number of working days. Dropping the salary sacrifice percentage down a few points, has brought me back under the limit each month and so now all of my pension contributions are excluded from NI charges again.

 

I understand the sensitivity of an employer being especially careful not to be seen to be flouting rules.  Just a little annoyed they took nearly 2 months to confirm this to me (despite me asking and chasing 3 or 4 times) in which time, it’s cost me nearly £700 in additional/unnecessary NI payments.  

Hey ho, I suppose it’s a nice problem to have.