Will salary sacrifice be ending in April?

Mick70

as others say, any changes are likely to be further down the line , if tax relief changes (i.e to a set 25% for all) then every chance that salary sac will also ,  but nobody knows for sure so don't worry about what you cannot control / influence 

CSL0183

The short answer is No as the unintended consequences are severe. 

1) Millions of low earners currently receive 32/33% tax relief by utilising salary sacrifice. Scrapping salary sacrifice wouldn’t just hit higher earners but millions of lower basic rate earners too. Vote loser. 

2) Double taxation considerations for HRT payers. Is it still cost effective to utilise pension provisions rather than utilising Lifetime ISA’s? (Of course there is an employers element to consider but they too could fill up ISA’s too, if rules change and permit) 

3) In order to close salary sacrifice schemes they would have to implement a BIK tax on employers contributions. So someone earning £60k for example receiving 10% matched contributions now earns £54k but with a £12k taxable benefit instead of the £54k they earn now but with the £12k untaxed. Not only are you being double taxed on your own 10% contribution but also that of the employers. Instead of £12k going into your fund currently with say 42% relief, to get that £12k in your fund you would pay 17% tax on it. (£2,040) (If adopting 25% flat rate) You would either take this hit in your take home pay or reduce your contributions so the cost is neutral to the take home (Much less than £12k going into your fund yearly)

4) The big problem is taking point 3 and applying it to the public sector. Employer Contributions into DB schemes are huge in comparison to DC schemes. Contributions alone are often in the 20-30% regions to make them work. You would then add say 25% to a nurses wage and tax them on it which would hit their take home pay significantly. Armed forces even worse where it’s non contributory. 

This will never happen in a month of Sunday’s. The government ruled it out in September and the usual press and media speculation in November before the mini budget announcement was way off the mark and it wasn’t ever mentioned. The same will happen again in March and then again 6 months later and it will be “possible” every 6 months according to the media but thankfully it’s never going to happen due to the complexities and the fall out. It would certainly lose a government an election. 

2nd_time_buyer

CSL0183 said:

The short answer is No as the unintended consequences are severe. 

1) Millions of low earners currently receive 32/33% tax relief by utilising salary sacrifice. Scrapping salary sacrifice wouldn’t just hit higher earners but millions of lower basic rate earners too. Vote loser. 

2) Double taxation considerations for HRT payers. Is it still cost effective to utilise pension provisions rather than utilising Lifetime ISA’s? (Of course there is an employers element to consider but they too could fill up ISA’s too, if rules change and permit) 

3) In order to close salary sacrifice schemes they would have to implement a BIK tax on employers contributions. So someone earning £60k for example receiving 10% matched contributions now earns £54k but with a £12k taxable benefit instead of the £54k they earn now but with the £12k untaxed. Not only are you being double taxed on your own 10% contribution but also that of the employers. Instead of £12k going into your fund currently with say 42% relief, to get that £12k in your fund you would pay 17% tax on it. (£2,040) (If adopting 25% flat rate) You would either take this hit in your take home pay or reduce your contributions so the cost is neutral to the take home (Much less than £12k going into your fund yearly)

4) The big problem is taking point 3 and applying it to the public sector. Employer Contributions into DB schemes are huge in comparison to DC schemes. Contributions alone are often in the 20-30% regions to make them work. You would then add say 25% to a nurses wage and tax them on it which would hit their take home pay significantly. Armed forces even worse where it’s non contributory. 

This will never happen in a month of Sunday’s. The government ruled it out in September and the usual press and media speculation in November before the mini budget announcement was way off the mark and it wasn’t ever mentioned. The same will happen again in March and then again 6 months later and it will be “possible” every 6 months according to the media but thankfully it’s never going to happen due to the complexities and the fall out. It would certainly lose a government an election. 

Thanks. What a reply! Plenty to digest. 

MDMD

JoeCrystal said:

zagfles said:

The budget was cancelled. Almost certain no major changes like this would be made for April 2021. There are multi-page threads here about this every few months.

Well, the Chancellor has announced that the government will publish the Budget on Wed 3 Mar 21. Considering how close it is to the following tax year, I imagined they wouldn't change too much of the tax system.

They can change what they like immediately- the budget always used to be in March and in most cases the Finance Act was passed in July, backdated to April, but the Provisional Collection of Taxes Act means that Parliament just need to pass a resolution to change the law, then have seven months to pass a full bill.

 https://www.legislation.gov.uk/ukpga/1968/2

However what could stop HR relief or SS being abolished completely would be the fact that it is fairly well embedded and would need consultation with payroll providers, pension companies etc.

zagfles

CSL0183 said:

The short answer is No as the unintended consequences are severe. 

1) Millions of low earners currently receive 32/33% tax relief by utilising salary sacrifice. Scrapping salary sacrifice wouldn’t just hit higher earners but millions of lower basic rate earners too. Vote loser. 

2) Double taxation considerations for HRT payers. Is it still cost effective to utilise pension provisions rather than utilising Lifetime ISA’s? (Of course there is an employers element to consider but they too could fill up ISA’s too, if rules change and permit) 

3) In order to close salary sacrifice schemes they would have to implement a BIK tax on employers contributions. So someone earning £60k for example receiving 10% matched contributions now earns £54k but with a £12k taxable benefit instead of the £54k they earn now but with the £12k untaxed. Not only are you being double taxed on your own 10% contribution but also that of the employers. Instead of £12k going into your fund currently with say 42% relief, to get that £12k in your fund you would pay 17% tax on it. (£2,040) (If adopting 25% flat rate) You would either take this hit in your take home pay or reduce your contributions so the cost is neutral to the take home (Much less than £12k going into your fund yearly)

4) The big problem is taking point 3 and applying it to the public sector. Employer Contributions into DB schemes are huge in comparison to DC schemes. Contributions alone are often in the 20-30% regions to make them work. You would then add say 25% to a nurses wage and tax them on it which would hit their take home pay significantly. Armed forces even worse where it’s non contributory. 

This will never happen in a month of Sunday’s. The government ruled it out in September and the usual press and media speculation in November before the mini budget announcement was way off the mark and it wasn’t ever mentioned. The same will happen again in March and then again 6 months later and it will be “possible” every 6 months according to the media but thankfully it’s never going to happen due to the complexities and the fall out. It would certainly lose a government an election. 

1) Many people in low income jobs can't use sal sac because their company doesn't offer it, public sector schemes tend to be net pay not sal sac, low paid private sector pensions are often RAS eg group personal pensions. Those people would be better off with a 25% flat rate relief instead of 20%. Vote winner!

2) It's not really "double taxation" if a HRT payer gets 25% flat relief now (so effective 15% tax now) then pays another 15% tax (accounting for PCLS, and assuming basic rate in retirement) when drawing. Total 30% tax, less than the 40% they'd otherwise pay. If they're a HRT payer in retirement, double taxation already exists as they'd likely be over the LTA

3) If employer pensions conts were assessed as a BIK, but with a flat rate relief of 25%, this would benefit anyone whose income plus pension conts didn't take them into HRT because they'd pay 20% tax on the BIK and get 25% relief back! Obviously anyone who pays HRT or gets pushed into HRT by the employer pension cont BIK would pay more tax.

But there's hundreds of other ways they could do this. They could treat pension sal sac in the same way as the 2017 changes to other sal sacs (ie distinguish between a benefit that can be traded and one that can't). They could limit employer pension conts to eg the value of the most generous public sector DB scheme, only employer conts above that are a BIK, so effectively capping sal sac.

4) As above.

So it's possible to do, it would probably benefit more people than it would hurt, but it would be complicated and would need consultation and time for employers to prepare, so virtually no chance of it happening this April IMO. Some complication and impact on higher earners could be mitigated by abolishing the AA and LTA, which probably wouldn't be needed as the lack of HRT relief would serve a similar function.

si2winit

If you want my honest opinion, the only way to raise the extra cash without additional complexity is to target the annual allowance, it’s easy to do and will raise more funds in tax. 

Dead_keen

If the government wants to, it can stop salary sacrifice schemes by just saying that NIC is due on amounts sacrificed in return for an employer contribution to a registered pension scheme.  It's very simple, easy and effective. It won't touch normal employer pension contributions.  Where it goes wrong is that it would not catch non-contributory schemes where there it became non-contributory instead of a payrise.  But those are few and far between.

Does the government want to do that?  Who knows.  It thought about it carefully in the early 2000s and decided not to.  But views change.

If the governments want to change pensions tax relief I would expect that it would first introduce anti-forstalling rules to prevent unusually large extra pension contributions for a year or three.  Then it would have time to consult on a new system that is fair to all.  There will the be a big brouhaha as all the losers will be much louder than the winners.  If anyone wants to see what the anti-forstalling rules might look like, google "high income excess relief charge".  Will the government change things?  No idea.  But if it does, it won't be a quick change.

MK62

After the eye watering sums the government have been spending (and rightly so imho), I really wouldn't rule anything out at the moment - that extra £400B or so will have to be clawed back from somewhere (likely everywhere), unless they do what they usually do, kick the can down the road and let our kids pay it.....

Given that a 1p rise in income tax raises about £5Bpa or so (depending on who's figures you take), that's not going to cut it - and in any case, the last thing you really need to be doing is raising direct taxes in the middle of a recession. Targetting pension relief and salary sacrifice schemes might well seem a juicy target, especially given that the likely "losers" from any changes are probably unlikely to run off en-masse and switch to Labour at the next election, and any "winners" aren't likely to be unhappy about it.....politics can be a cynical business in the end.

Still, any change on this in April 21 would be very unlikely at this point I think.

The big problem is, imo, that many are saying the money can't come from here, or there, or there etc........but it's going to have to come from somewhere, and the potential sources are far from unlimited.

westv

With interest rates currently at very low rates I wonder if the Government will be in any particular rush to pay back the money anyway.

MK62

There's that can again.....