Salary sacrifice via umbrella company

jimuthy333

I work via an umbrella company and I am paid £475 a day for a five day week and envisage 48 weeks of work per year, which will be £114,000 a year (475*5*48). Obviously I don't want to fall into the 60% tax trap, so wish to reduce my headline pay via salary sacrifice. 

On my pay slip it says my salary sacrifice as an employee is 0% and my employer is 8%. I attempted to increase my employee salary sacrifice from the pension website to 30%, but when I was paid this week, I received an email from the pension provider stating this had been reduced to 0%. I have contacted the umbrella company who replied that they are "unable to deduct further contributions for the workplace salary pension as salary sacrifice. If you increase your contributions this will be treated as an AVC meaning you would save in income tax but no other deductions". 

Does anyone know if this is true or is the umbrella company talking rubbish?

Gary1984

This is all a bit confusing. The whole point of salary sacrifice is that the employer makes contributions in lieu of salary. So employee salary sacrifice just doesn't make sense as a concept. It's probably the employer rate you want to increase to 30%? Check that your contributions are deducted before employee and employer national insurance is calculated on your payslip.

Is your 475 rate gross of employer's national insurance? If so you'll probably not need to worry too much about the 60% rate as you'll be close to £100k after employer NI is deducted. It's still a good idea to contribute to the pension though as salary sacrifice should let you avoid both sets of national insurance deductions (again, check with your umbrella this is actually the case).

Who is your umbrella company? Do you have any scope to change it? I'm with paystream and they've always been clear and transparent.

Grumpy_chap

jimuthy333 said:

I work via an umbrella company and I am paid £475 a day for a five day week and envisage 48 weeks of work per year, which will be £114,000 a year (475*5*48). Obviously I don't want to fall into the 60% tax trap, so wish to reduce my headline pay via salary sacrifice. 

On my pay slip it says my salary sacrifice as an employee is 0% and my employer is 8%. I attempted to increase my employee salary sacrifice from the pension website to 30%, but when I was paid this week, I received an email from the pension provider stating this had been reduced to 0%. I have contacted the umbrella company who replied that they are "unable to deduct further contributions for the workplace salary pension as salary sacrifice. If you increase your contributions this will be treated as an AVC meaning you would save in income tax but no other deductions". 

Does anyone know if this is true or is the umbrella company talking rubbish?

It is up to the individual UC whether they operate SS or not - many UCs do operate SS as there is a clear benefit (added value) if they do so.  Normally the process would be to request via the UC and not via the pension scheme.

If the UC you are signed up with is not willing to operate SS, do you have any choice to select an alternative UC?

Which UC are you signed up with?  The response you received is rather unusual.

Dazed_and_C0nfused

Isn't this the problem?

I attempted to increase my employee salary sacrifice from the pension website to 30%,

An employee can't contribute using salary sacrifice.  They need to agree a lower salary, in return for additional employer contributions.

Which is a different request.

Grumpy_chap

While I agree with the notion for UC employees to contribute as much as possible to pension via SS, the OP may not actually need to do anything further to avoid exceeding the £100k threshold at which 60% (62% inc NI) effective tax rate applies.

Is the OP being opportunistic with the calculation of 48 working weeks?
52 weeks in the year
8 days (England & Wales) Bank Holiday
2 days sickness / unplanned absence for whatever reason arises
4 weeks annual leave (which the OP seems to have considered)
46 weeks possible working weeks, not the 48 the OP assessed.

I am assuming that the majority of people with good incomes in the region of £100k will prefer to enjoy quality family time, rest and relaxation rather than an extra week of pay / overtime.

£475 x 5 x 46 = £109,250

UC Margin, say £25 per week so a deduction of £25 x 46 = £1,150
Balance £108,100
This has to be worked backwards, but approximate deductions will be:
 - Employer's NI £12,400
 - Apprenticeship Levy £500
 - Employer's Pension Contribution 8% £7,600

Resultant salary around £87.6k

The UC should be able to provide a projection based on actual figures, which correctly works the "backward" iteration for the OP's actual case.
Some UC's are only good at doing this for a "worked week" and the multiple up to the yearly figure is not 52 "worked weeks".  UC's can also be hit-and-miss when looking at pension deductions other than the two extremes (auto-enrolment or NMW percentages) but *should* be able to give an indication that is reasonable for any percentage in between.

Fox40

Can I ask which Umbrella company you are with? I used to be a contractor (up to a couple of months back) paid via an Umbrella Company (Paystream). I changed my Salary Sacrifice via the umbrella company portal not my SIPP provider. Bear in mind you can only change your pension contributions at the start of the Tax Year or on occurrence of a significant life event. 

As @Grumpy_chap said your 48 week estimate is high, especially as a lot of clients will enforce contractor time off over Christmas. I had to take 2 weeks. My rate was a little higher than yours but I billed £112K last tax year. After I put £135pd into my Pension via Salary Sacrifice and all the other employer deductions my gross was a bit over £70K, well away from the upper limit 

Grumpy_chap

Fox40 said:

Bear in mind you can only change your pension contributions at the start of the Tax Year or on occurrence of a significant life event. 

AIUI, that rule does not apply in the case of SS pension contributions - it does apply for all other cases.  SS pension contributions may be changed at will, however many employers impose restrictions on frequency as you suggest.  Simply, the admin burden could be too great otherwise.

C4rlos12345678

@Fox40

See below re; Life event 

https://forums.moneysavingexpert.com/discussion/6496863/salary-sacrifice-only-allowed-to-change-in-the-case-of-a-life-event-what-does-it-really-mean#latest

Gary1984

I think if it came to it you could switch umbrella companies in order to change your salary sacrifice level. I don't think one employer could be beholden to contribute at the same rate as your previous employer just because you changed jobs (or in this case employer) during a tax year.