Carrying forward allowance from previous tax years and salary sacrifice

lucyandthomas

My husband has been a higher rate tax payer for 10+ years. He paid about 6K into his company DC pension every year until this tax year. We're thinking of overpaying this tax year. Am I right in thinking he can pay 40K (incl. employer contributions) for this tax year (2020/21) PLUS the extra bit from 3 years ago (2017/18 tax year - he paid about 6k, so max of 34k can be carried forward). Is that right? Do we have to do anything, such as tell his pension company or HMRC, to carry some of the 2017/18 allowance forward, or do we just have to keep a record?

Another question, his company don't seem to do salary sacrifice on 'normal pension contributions' (so if 1K is taken from pre-tax pay, 1K appears in his pension), but when we asked them to pay his bonus in to his pension, the figure was slightly higher than the amount we were expecting. I think this is because they gave him the NI too. Does that sound right?

Is the pension allowance 40K (excluding anything carried forward) regardless of whether contributions were paid as 'normal pension contributions' or salary sacrifice? In other words, can he pay in up to a value of 40K regardless of where the money came from?

Hope that makes sense - I'm just starting to get my head around this.
Thanks in advance

Albermarle

He can not add to a pension gross more than his salary this tax year , regardless of what happened in previous years.
So in the example you give he would have to have earnt a minimum of £74K this tax year to take advantage of the carry forward .
Separately have you taken into account that the £40K limit includes tax relief and employer contributions . In this case the amount he can contribute will be less than £40K .

Dazed_and_C0nfused

Another question, his company don't seem to do salary sacrifice on 'normal pension contributions' (so if 1K is taken from pre-tax pay, 1K appears in his pension),

That looks like either salary sacrifice or net pay.

Salary sacrifice will mean your husband hasn't actually contributed anything, the has agreed to a lower salary in return for the employer contributing more into his pension.

That is why there is no pension tax relief due on salary sacrifice, as they are employer contributions.

The tax (and NI) saving comes from not having the income in the first place.

You should be able to see from his payslip which method is used.  If taxable and NIC'ble pay are the same it is usually salary sacrifice but of taxable pay is less than NIC'ble then it would be net pay.

lucyandthomas

Albermarle
Thanks - yes, earned over 74K so that's fine. Not actually planning on putting the extra 34K in (funds don't stretch that far I'm afraid), but just checking I've got the gist of it right. 

Was including tax relief and employer contributions in the 40K, so sounds like I'm on the right track.

lucyandthomas

Dazed_and_C0nfused said:

Another question, his company don't seem to do salary sacrifice on 'normal pension contributions' (so if 1K is taken from pre-tax pay, 1K appears in his pension),

That looks like either salary sacrifice or net pay.

Salary sacrifice will mean your husband hasn't actually contributed anything, the has agreed to a lower salary in return for the employer contributing more into his pension.

That is why there is no pension tax relief due on salary sacrifice, as they are employer contributions.

The tax (and NI) saving comes from not having the income in the first place.

You should be able to see from his payslip which method is used.  If taxable and NIC'ble pay are the same it is usually salary sacrifice but of taxable pay is less than NIC'ble then it would be net pay.

His payslip doesn't mention NIC'ble pay. Got gross pay and taxable pay - they are the same figure. Is that what you mean?

Thanks for your help

lucyandthomas

Do we need to tell pension provider/HMRC if he is carrying some of 2017/18 allowance forward? This is the oldest year he can use isn't it?

lucyandthomas

Also, there is something called 'Smart Saving AE Z33' on his payslip which goes into his pension (as well as AE Stakeholder EE and ER figures, which I understand are employee and employer contributions). Any idea what this can be? He's asked the question at work but got blank looks in response! 

Dazed_and_C0nfused

lucyandthomas said:

Also, there is something called 'Smart Saving AE Z33' on his payslip which goes into his pension (as well as AE Stakeholder EE and ER figures, which I understand are employee and employer contributions). Any idea what this can be? He's asked the question at work but got blank looks in response! 

Smart is often used in connection with salary sacrifice.
I suspect you will need to post details (without name, NINO and payroll number) from a payslip to get to the bottom of this and understand exactly what is being contributed under each different method and by whom.

lucyandthomas

Dazed_and_C0nfused said:

lucyandthomas said:

Also, there is something called 'Smart Saving AE Z33' on his payslip which goes into his pension (as well as AE Stakeholder EE and ER figures, which I understand are employee and employer contributions). Any idea what this can be? He's asked the question at work but got blank looks in response! 

Smart is often used in connection with salary sacrifice.
I suspect you will need to post details (without name, NINO and payroll number) from a payslip to get to the bottom of this and understand exactly what is being contributed under each different method and by whom.

So maybe he is getting paid by salary sacrifice after all. Plot thickens!

Here is an anonymised payslip - all help very gratefully received 😀

Bemma

lucyandthomas said:

... (so if 1K is taken from pre-tax pay, 1K appears in his pension), but when we asked them to pay his bonus in to his pension, the figure was slightly higher than the amount we were expecting...

Just to add a comment about the above.  My company does Salary Sacrifice, it offers an additional 7% of employers NI to normal monthly SS contributions, but it offers the full 13.8% of employers NI when SS your annual bonus.  Maybe your husband's company offer employers NI at different rates for normal contributions and bonuses!  (I've no idea if this is common, but don't think I've ever heard anyone else mention it before!)

Albermarle

lucyandthomas said:

Do we need to tell pension provider/HMRC if he is carrying some of 2017/18 allowance forward? This is the oldest year he can use isn't it?

No need to tell HMRC .
However you should keep details of your calculations in case they ever ask .
The pension provider may highlight that you are going over the £40K annual allowance but you can ignore that and/or inform them you have unused allowance for previous years .