Salary Sacrifice timings

Jeremy535897

One further thought. Whichever date is correct, presumably it applies consistently to the first contribution in the year as well as the last, so that there are 12 contributions each tax year? Unless the monthly amounts differ, I am not clear how this issue affects things?

Grumpy_chap

Jeremy535897 said:
 Unless the monthly amounts differ, I am not clear how this issue affects things?

If:
1.  This is the first year of increased contribution.
2.  You have unused carry forward from 3 years ago that will be lost
3.   You expect to make contributions this (2022-3) year that will use all of this year's allowance
4.  Contributions this year will also exceed all available allowance from 2 years ago

The results is allowance from 3 years ago that gets lost to time at the expense of premature consumption of allowance that could otherwise be used in the future.

Monthly contribution will vary for anyone not on standard PAYE.

The above may be an edge case, but there are definitely people for whom it applies.

kinger101

Grumpy_chap said:

I had exactly this question with regard to my own salary sacrifice pension contributions and both my Accountant plus my IFA stated that the contribution was considered for the annual allowance as per the date the funds land in the pension scheme.

This was of particular interest to me as I had enough remaining carry-forward allowance from three years ago to avoid biting into the new 2022-3 allowance.  My next pension contribution (for March earnings) will land in the pension on 6th or 7th April and will count as 2022-3 contributions.

My IFA advised:
"It is the date of receipt by the pension scheme which determines the tax year for annual allowance purposes (irrespective of the income/corporation tax deductibility date of payroll)."

My Accountant advised:
"For tax purposes the treatment is based on the date that items are received rather than the period they relate to. A classic example of this is dividends (where a dividend for the year ended 31st March is often not paid by companies until September)."

Hope that helps.

Thanks

That's what I was hoping.  

kinger101

Jeremy535897 said:

One further thought. Whichever date is correct, presumably it applies consistently to the first contribution in the year as well as the last, so that there are 12 contributions each tax year? Unless the monthly amounts differ, I am not clear how this issue affects things?

I don't make uniform monthly contributions so it matters very much.  Particularly with reference to March 2023 as I need to know which year my bonus will fall in if I sacrifice the entire amount.

Grumpy_chap

kinger101 said:

Grumpy_chap said:

I had exactly this question with regard to my own salary sacrifice pension contributions and both my Accountant plus my IFA stated that the contribution was considered for the annual allowance as per the date the funds land in the pension scheme.

This was of particular interest to me as I had enough remaining carry-forward allowance from three years ago to avoid biting into the new 2022-3 allowance.  My next pension contribution (for March earnings) will land in the pension on 6th or 7th April and will count as 2022-3 contributions.

My IFA advised:
"It is the date of receipt by the pension scheme which determines the tax year for annual allowance purposes (irrespective of the income/corporation tax deductibility date of payroll)."

My Accountant advised:
"For tax purposes the treatment is based on the date that items are received rather than the period they relate to. A classic example of this is dividends (where a dividend for the year ended 31st March is often not paid by companies until September)."

Hope that helps.

Thanks

That's what I was hoping.  

So, you have used all available 2021-2 contribution allowance and no carry forward from three years ago that will be lost to time.
Landing in 2022-3 will be advantageous (although if you have any remaining carry-forward from 2 years ago, the consequences are less).

kinger101

Grumpy_chap said:

kinger101 said:

Grumpy_chap said:

I had exactly this question with regard to my own salary sacrifice pension contributions and both my Accountant plus my IFA stated that the contribution was considered for the annual allowance as per the date the funds land in the pension scheme.

This was of particular interest to me as I had enough remaining carry-forward allowance from three years ago to avoid biting into the new 2022-3 allowance.  My next pension contribution (for March earnings) will land in the pension on 6th or 7th April and will count as 2022-3 contributions.

My IFA advised:
"It is the date of receipt by the pension scheme which determines the tax year for annual allowance purposes (irrespective of the income/corporation tax deductibility date of payroll)."

My Accountant advised:
"For tax purposes the treatment is based on the date that items are received rather than the period they relate to. A classic example of this is dividends (where a dividend for the year ended 31st March is often not paid by companies until September)."

Hope that helps.

Thanks

That's what I was hoping.  

So, you have used all available 2021-2 contribution allowance and no carry forward from three years ago that will be lost to time.
Landing in 2022-3 will be advantageous (although if you have any remaining carry-forward from 2 years ago, the consequences are less).

I'll have about £50K of c/f I can use in 2022/2023 (about 25K for each from 19/20 and 20/21).  I've used all my 21/22 AA already (plus some c/f from 18/19).

It's a nice problem to have, but juggling not paying 60% tax, losing childcare and potentially entering tapered AA territory is a real headache, particularly as a chunk of my remuneration is somewhat unpredictable (annual bonus and restricted stock options). 

I'm wondering if I'm getting into tail wagging the dog territory.  

zagfles

Jeremy535897 said:

It seems the most analogous, but I agree that there seems to be nothing specific on salary sacrifice.

Net pay and sal sac are similar from an employee taxation POV (main difference being NI saving with sal sac), but totally different as far as HMRC view the pension conts. Net pay conts are employee conts, so the date the employee makes the cont is relevant. Sal sac is the employee and employer agreeing a contract variation where pay is reduced and employer pension conts are increased. So sal sac conts are employer pension conts, which I think count when they are made, although I can't find any confirmation in the PTM. But Grumpy's IFA and accountant seem to agreee.

Grumpy_chap

zagfles said:

Grumpy's IFA and accountant seem to agreee.

Much to my annoyance

I've used all of my 21-22 contribution allowance and most of the remaining 18-19 allowance.  Indeed, if my March SS went in as a 21-22 contribution, it would mean only around £1.5k of unused allowance lost to time.

Based on the advice of the IFA and Accountant, the March SS will land in the pension fund on around 7th April and is therefore immediately starts to eat 22-23 contribution allowance.  With ongoing SS, I will use all of 22-23 plus all remaining 19-20 and most of 20-21 contribution allowance by the end of 22-23 tax year.  That then means that the contributions from early within 23-24 will be restricted to the annual contribution allowance which I am not expecting to be uplifted between now and then.

I'd very much like my IFA / Accountant to be wrong and it would be fantastic if someone shared a golden bullet in this thread but, ultimately, you don't pay an expert (or two) for advice and then grumble when you simply dislike their answer - even more so when they agree.

Jeremy535897

Thinking more about this, I wonder whether the salary sacrifice element is a bit of a red herring, and the contribution is treated as made according to the normal rules that apply to any employer contribution? Those rules are set out in the Pensions Tax Manual already referred to earlier, at https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm041000#IDA0QUFG and they examine when the different types of payment are treated as made.

Grumpy_chap

Thanks Jeremy.

I would agree that it seems sensible that once SSD, the pension contributions become straight forward employer contributions.

I will review your link.