Carrying forward allowance from previous tax years and salary sacrifice

jamesd

At higher rate with a net pay scheme 100% of the contribution ends up in the pension and NI is the same.

With a salary sacrifice scheme 100% of the contribution ends up in the scheme plus any employer NI addition and the NI is reduced by 2% of the contribution. If it's 100% only then no employer NI saving is being added.

When doing higher rate salary sacrifice do it in as few months just above minimum wage as possible, because NI is worked out on pay periods and much of the sacrifice in the period will be at 12% employee NI saving. For the rest of the months just do enough to get ordinary employer NI matching.

lucyandthomas

jamesd said:

At higher rate with a net pay scheme 100% of the contribution ends up in the pension and NI is the same.

With a salary sacrifice scheme 100% of the contribution ends up in the scheme plus any employer NI addition and the NI is reduced by ²% of the contribution. If it's 100% only then no employer NI saving is being added.

When doing higher rate salary sacrifice do it in as few months just above minimum wage as possible, because NI is worked out on pay periods and much of the sacrifice in the period will be at 12% employee NI saving. For the rest of the months just do enough to get ordinary employer NI matching.

Many thanks for your help. 

He wants to pay as much as possible into his pension next year, so up to 40k + approx 34k (carried forward from 2019/20), total 74k.

Pre-tax pay is £6666 each month. As he works 40 h per week and based on £9 per hour as NMW (£1560 per month), does that mean he could pay £5166 (minus employers pension contribution and smart payment) every month? So approx 4.5k (as 12 months x 4.5k + employers contribution and smart payment) is still less than 74k?

Have I understood correctly?

Thanks again

jamesd

What do you mean by "smart payment"?

Yes, he could sacrifice down to £1560 a month. From him that'd be 6666 - 1560 = 5106. Arriving in the pension pot and counting towards annual allowance will be the £5106 plus any shared employer NI saving and employer matching. That will use 12 * (5106 plus any shared employer NI saving plus employee matching) of annual allowance. At least £61,272.

The employee NI saving from the sacrifice shows up as a lower NI deduction on the payslip.

lucyandthomas

Smart payment is showing in bottom right corner of payslip (see post above) - I believe this is the employers NI payment (smart pay is £64.40 to go with employer contribution of £400 per month). Does that sound right? Trying to get a straight answer from his HR department is like pulling teeth!

One last question - I really do appreciate everyone’s help.

If he has salary of 80k plus car/fuel/health care benefits of approx 10k, and pays enough into his pension to bring the 90k figure below 50k (which he would if he paid 61k discussed above), would we qualify for child benefit? I earn less than 50k.

Thanks

jamesd

Yes, that will result in a return to getting child benefit.

If the annual allowance with carry-forward won't allow it every year he can do mixed high sacrifice and low sacrifice years. High to get full child benefit back, low to accumulate some unused annual allowance that can be used in later years.