Salary Sacrifice

Hi,

New to the idea of this so have some questions I can't find answered easily on google. Wondered if anyone here could help:

If I was to take part in a salary sacrifice scheme with my employee, equal to the amount I put towards a workplace pension, would I get a reduction on all my deductions, i.e. Income Tax, NI and Student Loan, or just a reduction in NI. Secondly, if you're salary sacrifice keeps you at the higher earner NI rate, are you only making a 2% saving on any salary sacrifice instead of 10%?

I'll also ask my employer but it would be good to know these things first.

Thanks
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  • BoGoF
    BoGoF Posts: 6,756
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    Yes, you are effectively giving up salary so all liabilities will be calculated on the amount after sacrifice. And if you remain Higher Rate then any NIC saving will be only at 2%.
  • lisyloo
    lisyloo Posts: 29,502
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    You would get a reduction on your income tax and NI, but your pension get income tax relief anyway, so effectively the addition is NI. If your really lucky your employer MAY pass on their employers NI saving in full or in part or they may pass on nothing and trouser the savings themselves.

    If your entire contribution falls into the higher rate band (40%) then correct the additional saving is only 2% on NI (on top of the already 40% income tax).

    It will be different of course if some of the money comes below the 40% threshold.


  • Superhoopza
    Superhoopza Posts: 380
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    lisyloo said:
    You would get a reduction on your income tax and NI, but your pension get income tax relief anyway, so effectively the addition is NI. If your really lucky your employer MAY pass on their employers NI saving in full or in part or they may pass on nothing and trouser the savings themselves.

    If your entire contribution falls into the higher rate band (40%) then correct the additional saving is only 2% on NI (on top of the already 40% income tax).

    It will be different of course if some of the money comes below the 40% threshold.


    am I right to say you would still see the benefit in your take home pay of the 40% income tax not being paid? Apologies if it's a simple question or I have not understood correctly.
  • BoGoF
    BoGoF Posts: 6,756
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    lisyloo said:
    You would get a reduction on your income tax and NI, but your pension get income tax relief anyway, so effectively the addition is NI. If your really lucky your employer MAY pass on their employers NI saving in full or in part or they may pass on nothing and trouser the savings themselves.

    If your entire contribution falls into the higher rate band (40%) then correct the additional saving is only 2% on NI (on top of the already 40% income tax).

    It will be different of course if some of the money comes below the 40% threshold.


    am I right to say you would still see the benefit in your take home pay of the 40% income tax not being paid? Apologies if it's a simple question or I have not understood correctly.
    Yes and no. Your take home pay is going down as you have sacrified the pay.If you say sacrifice £1000 per month into pension that £1000 goes straight into your pension. Had it been paid to you 40% tax and 2% NIC (based on you remaining HR) would have been deducted so you would only have received £580 net in your pay.
  • Superhoopza
    Superhoopza Posts: 380
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    BoGoF said:
    lisyloo said:
    You would get a reduction on your income tax and NI, but your pension get income tax relief anyway, so effectively the addition is NI. If your really lucky your employer MAY pass on their employers NI saving in full or in part or they may pass on nothing and trouser the savings themselves.

    If your entire contribution falls into the higher rate band (40%) then correct the additional saving is only 2% on NI (on top of the already 40% income tax).

    It will be different of course if some of the money comes below the 40% threshold.


    am I right to say you would still see the benefit in your take home pay of the 40% income tax not being paid? Apologies if it's a simple question or I have not understood correctly.
    Yes and no. Your take home pay is going down as you have sacrified the pay.If you say sacrifice £1000 per month into pension that £1000 goes straight into your pension. Had it been paid to you 40% tax and 2% NIC (based on you remaining HR) would have been deducted so you would only have received £580 net in your pay.
    But then you are also not paying the £1,000 for pensions from your pre tax deductions so your net pay goes up unless I'm missing something?
  • BoGoF
    BoGoF Posts: 6,756
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    edited 13 February at 5:30PM
    Look at it this way. Before sacrifice say your gross taxable income was £6000 per month but you then sacrifice £1000 taking your gross taxable to £5000 so obviously your take home pay is going to be less as your salary is less. The £1000 goes to your pension at a net cost to you of £580. That is how the salary sacrifice 'savings' work.

    Edit: I think I know what you mean now. How are your current pension contributions dealt with?
  • penners324
    penners324 Posts: 2,581
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    Your savings will be 42% or 32%
  • MDMD
    MDMD Posts: 1,412
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    Your savings will be 42% or 32%
    They can be more than that. Due to the way NI works on a monthly bays you can get 40% or 45% tax relief plus 12% NI relief of you make lumpy contributions.
  • lisyloo
    lisyloo Posts: 29,502
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    MDMD said:
    Your savings will be 42% or 32%
    They can be more than that. Due to the way NI works on a monthly bays you can get 40% or 45% tax relief plus 12% NI relief of you make lumpy contributions.
    I've never worked anywhere in over 30 years that allows lumpy contributions.
    Some larger employers only allow you to change it once per year unless there are exceptional circumstances (like a death, child etc.)
  • Superhoopza
    Superhoopza Posts: 380
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    BoGoF said:
    Look at it this way. Before sacrifice say your gross taxable income was £6000 per month but you then sacrifice £1000 taking your gross taxable to £5000 so obviously your take home pay is going to be less as your salary is less. The £1000 goes to your pension at a net cost to you of £580. That is how the salary sacrifice 'savings' work.

    Edit: I think I know what you mean now. How are your current pension contributions dealt with?
    They are a percentage of my gross salary and deducted from my net pay. So that same value will be taken off my gross, moved straight to my pension pot and I save the tax liability on that value.
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