60% Tax Trap at 100K

Pat38493

Hi,

I was reading up on ways to avoid or reduce impact of the so called "60% tax trap" where your personal allowance starts to be removed when your income gets to 100K.

Obviously you can mitigate this by increasing pension contributions - that's clear.

A couple of the sites I read recommended that you can mitigate this also by "asking your employer to let you sacrifice part of your salary for items like healthcare or car".

I don't think this can be true is it?  Those kind of benefits would be counted as taxable income and so you would still lose part of your personal allowance if the value of those benefits took you above 100K of income?  Or am I missing something there?

Jeremy535897

Benefits in kind are part of adjusted net income, so there must be something more to what you have seen.

biscan25

There are some other things that would work in this scenario, such as childcare vouchers or cycle to work, but healthcare and cars would incur tax as you say. i.e. Salary sacrifice for employers - GOV.UK (www.gov.uk)

Tax and National Insurance contributions exemptions on non-cash benefits

Exemptions on benefits in kind do not apply to salary sacrifice schemes. The only benefits you do not need to value and do not have to report to HMRC for a salary sacrifice arrangement are:

• payments into pension schemes
• employer provided pensions advice
• workplace nurseries
• childcare vouchers and directly contracted employer provided childcare that started on or before 4 October 2018
• bicycles and cycling safety equipment (including cycle to work)

pjread

I believe electric cars are treated quite favourably (i.e. the BIK value is lower than the 'true' value you might sacrifice to get a Tesla or similar)

KingOfSnake

Healthcare would be like-for-like i.e. replace taxable salary with a taxable BIK, so no benefit. Cars can work but only if they are low emission vehicles otherwise OpRA will bite and you'll be taxed on the higher of the BIK or salary given-up. Most non-taxable benefits are caught by OpRA - search for 'Optional Remuneration Arrangements"'.
Also, just to twist the knife - it is 63.25% tax - by the time you add 2% employee NIC and 1.25% H&SCL (actually just NIC for 22/23 before becoming a separate levy). If you can afford it.... and you understand the risks.... and it suits your lifestyle etc etc, pension sal sac is brilliant (plus most employers give you a %age of their employer NIC (13.8% + 1.25% H&SCL) saving. If you want to take it to tax relief nirvana (and have enough unused annual allowance to carry forward) you can do enough to get child benefit back, which is tax free cash. 

Grumpy_chap

KingOfSnake said:

tax relief nirvana

That is surely only achieved once SS down to NMW.

Pennywise

Perhaps they're thinking more of things that cost the employer less than the employee would have to pay, i.e. group scheme for health insurance or gym membership?

Re cars etc, it's not taxed "pound for pound" and employers can reclaim VAT on, say, lease costs, fuel, repairs, etc., so it's quite possible the scale charges (added to income for tax calcs) can be less than the reduction in salary, and there's no employee NIC on BIKs but a saving in employee NIC on a wage reduction, so salary sacrifice for a car "can" work if the figures work out right (i.e. low emission car, or even better a "van" (maybe 4*4 crew cab) or electric car both of which get good tax relief for employer and relative low BIK for the employee.