Taxable income & pension salary sacrifice

mac123

The Childcare service have refused my tax free childcare application as they think my taxable income will be over £100k

I told them that taxable income will be under £100k as I have increased my pension contributions for Jan, Feb & March so will be £90k 

They said as these pension contributions are via salary sacrifice then it’s not allowed so they refused my application 

I can appeal but before I do that, are they right? 

I didn’t want to tell her that my pension contributions have been via SS for years and it’s never been refused before 

thanks 

Alice_Holt

mac123 said:

The Childcare service have refused my tax free childcare application as they think my taxable income will be over £100k

I told them that taxable income will be under £100k as I have increased my pension contributions for Jan, Feb & March so will be £90k 

They said as these pension contributions are via salary sacrifice then it’s not allowed so they refused my application 

I can appeal but before I do that, are they right? 

I didn’t want to tell her that my pension contributions have been via SS for years and it’s never been refused before 

thanks 

 Possibly better posted on the Cutting Tax board (or the Pensions board), than the Benefits board.
You are more likely to get replies there.

However, this indicates SS may cause a potential double counting of tax relief, and so inadmissible for TFC:
https://www.nhsemployers.org/articles/salary-sacrifice-and-tax-free-childcare


(Note that Tax Credits were a income top up for low-income working households and parents, now replaced by Universal Credit)  

huckster

My reading is that SS way of paying into pension does not enable the tax free childcare to become available, as the adjusted net income would not factor in the SS. Therefore the earnings could still be too much to receive the tax free childcare.

Read the adjusted net income link about how they deal with pension contributions.

Tax-Free Childcare - GOV.UK (www.gov.uk)
Personal Allowances: adjusted net income - GOV.UK (www.gov.uk)

Icequeen1

huckster said:

My reading is that SS way of paying into pension does not enable the tax free childcare to become available, as the adjusted net income would not factor in the SS. Therefore the earnings could still be too much to receive the tax free childcare.

Read the adjusted net income link about how they deal with pension contributions.

Tax-Free Childcare - GOV.UK (www.gov.uk)
Personal Allowances: adjusted net income - GOV.UK (www.gov.uk)

Can you explain? SS reduces taxable income which is the starting point for ANI calculation?

OP - i think you need to appeal. Salary sacrifice reduces taxable income which is the starting point of the adjusted net income calculation. People with income over 100k start to lose their personal allowance, one way to avoid this is to salary sacrifice. There is a very detailed article here that explains https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/60-tax-relief-on-pension-contributions/ why salary sac is more beneficial. 

The loss of the personal allowance is based on adjusted net income in the same way as TFC. 

mac123

Just to update and close this off in case anyone was wondering

I raised a complaint and the call was listened to and the complaints officer was horrified at the inaccurate advice I was given 

As I thought/knew, SS is a perfectly legal way to reduce your adjusted net income and therefore I was entitled. I received a payment equal to the missed tax free childcare entitlement for the last quarter and continue to receive the allowance now

Thanks for all your help here

Dazed_and_C0nfused

mac123 said:

Just to update and close this off in case anyone was wondering

I raised a complaint and the call was listened to and the complaints officer was horrified at the inaccurate advice I was given 

As I thought/knew, SS is a perfectly legal way to reduce your adjusted net income and therefore I was entitled. I received a payment equal to the missed tax free childcare entitlement for the last quarter and continue to receive the allowance now

Thanks for all your help here

Satisfactory outcome but I do think you may find life easier if you stick to the facts with this.

Salary sacrifice means you aren't contributing to a pension, your employer is making additional employer contributions so there is nothing you can deduct when calculating your adjusted net income.

Say your salary is £120k and you sacrifice £25k then your taxable income from that employment is £95k and that is where your adjusted net income calculation starts. 

You cannot deduct employer pension contributions and you do not get any pension tax relief on them either.