Salary sacrifice

cloud_dog

@Paulm4949, I know some figures have been provided in posts further up, but if we just look at a simplistic example....

Usual pension contribution of £100 only costs you (reduced take home) £60 because of higher rate tax relief.

Under SS the £100 only costs you (reduced take home) £58.

So at a simple contribution level, for every £100 contributed, you save an additional £2 through reduced NICs.

If you were a basic rate tax payer, or contributed more into your pension doen into your BRT band, the savings would be 20% tax relief and 8% NIC savings.

Some very nice employers offer you some of their own NIC savings (mine never did).

There are additional benefits of being under SS, insofar as your actual reported gross to HMRC is the reduced amount (salary minus sacrificed amount).  This can have additional benefits if, for example you make student loan payments as the calculation will be based on a lower number.

Cobbler_tone

westv said:

dunstonh said:

Albermarle said:

Salary sacrifice does not benefit the government... quite the opposite actually as they will not receive the corresponding National Insurance payments from you or your employer on the pension contributions that you make.

In fact due to so many workplace pensions operating a salary sacrifice scheme, the Treasury is losing Billions AIUI.
There was speculation that it could be banned, although it is not as simple to do that as it sounds and so far it still operates as a legal tax avoidance method.

I believe that the latest figures have it over £23bn a year.   When you consider that around 25 years ago, it barely registered as a cost, it has become a significant cost to the Treasury.

Remember that sal sac doesn't just include pensions. Is there a figure purely for that?

£1,800 into company share save scheme, although the government want us to invest in businesses.

Albermarle

vacheron said:

Albermarle said:

Salary sacrifice does not benefit the government... quite the opposite actually as they will not receive the corresponding National Insurance payments from you or your employer on the pension contributions that you make.

In fact due to so many workplace pensions operating a salary sacrifice scheme, the Treasury is losing Billions AIUI.
There was speculation that it could be banned, although it is not as simple to do that as it sounds and so far it still operates as a legal tax avoidance method.

I was actually going to touch on that on my earlier post. Our company was one of the early adopters of salary sacrifice and after we explained it to our friends (or when people left our company to work for other companies who didn't offer it), these people often lobbied their new finance departments to see if it could be introduced at their workplace.

It was amazing how many finance directors were unaware of it and were reluctant to implement it because they were of the impression that it was somehow "dodgy" or some kind of tax evasion (rather than avoidance) scheme.

Even when they were given links directly to the .GOV page that shows employers how to implement salary sacrifice, many still remained suspicious. 

Personally (although I also still tend to refer to it as such), I wouldn't really consider pension salary sacrifice as "tax avoidance" because there is no bending of the rules involved. The rules are exactly as permitted by government legislation and used for the explicit purpose for which they were intended.

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

It is legal tax avoidance, even when there is no bending of rules.
Same as putting savings in a cash ISA as an example.

vacheron

Albermarle said:

vacheron said:

Albermarle said:

Salary sacrifice does not benefit the government... quite the opposite actually as they will not receive the corresponding National Insurance payments from you or your employer on the pension contributions that you make.

In fact due to so many workplace pensions operating a salary sacrifice scheme, the Treasury is losing Billions AIUI.
There was speculation that it could be banned, although it is not as simple to do that as it sounds and so far it still operates as a legal tax avoidance method.

I was actually going to touch on that on my earlier post. Our company was one of the early adopters of salary sacrifice and after we explained it to our friends (or when people left our company to work for other companies who didn't offer it), these people often lobbied their new finance departments to see if it could be introduced at their workplace.

It was amazing how many finance directors were unaware of it and were reluctant to implement it because they were of the impression that it was somehow "dodgy" or some kind of tax evasion (rather than avoidance) scheme.

Even when they were given links directly to the .GOV page that shows employers how to implement salary sacrifice, many still remained suspicious. 

Personally (although I also still tend to refer to it as such), I wouldn't really consider pension salary sacrifice as "tax avoidance" because there is no bending of the rules involved. The rules are exactly as permitted by government legislation and used for the explicit purpose for which they were intended.

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

It is legal tax avoidance, even when there is no bending of rules.
Same as putting savings in a cash ISA as an example.

I appreciate that this is the general interpretation, but I was using the government definition. 

Tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage.

They use the term "tax planning" for salary sacrifice and the ISA example you describe.

Albermarle

vacheron said:

Albermarle said:

vacheron said:

Albermarle said:

Salary sacrifice does not benefit the government... quite the opposite actually as they will not receive the corresponding National Insurance payments from you or your employer on the pension contributions that you make.

In fact due to so many workplace pensions operating a salary sacrifice scheme, the Treasury is losing Billions AIUI.
There was speculation that it could be banned, although it is not as simple to do that as it sounds and so far it still operates as a legal tax avoidance method.

I was actually going to touch on that on my earlier post. Our company was one of the early adopters of salary sacrifice and after we explained it to our friends (or when people left our company to work for other companies who didn't offer it), these people often lobbied their new finance departments to see if it could be introduced at their workplace.

It was amazing how many finance directors were unaware of it and were reluctant to implement it because they were of the impression that it was somehow "dodgy" or some kind of tax evasion (rather than avoidance) scheme.

Even when they were given links directly to the .GOV page that shows employers how to implement salary sacrifice, many still remained suspicious. 

Personally (although I also still tend to refer to it as such), I wouldn't really consider pension salary sacrifice as "tax avoidance" because there is no bending of the rules involved. The rules are exactly as permitted by government legislation and used for the explicit purpose for which they were intended.

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

It is legal tax avoidance, even when there is no bending of rules.
Same as putting savings in a cash ISA as an example.

I appreciate that this is the general interpretation, but I was using the government definition. 

Tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage.

They use the term "tax planning" for salary sacrifice and the ISA example you describe.

OK, not going to argue over semantics.

I would say though there are some grey areas, such as reducing your income with salary sacrifice, so you can still claim child benefit when a relatively high earner.
Or splitting larger pension pots into smaller pots, so you can withdraw them under the small pots rule ( like I have done) 
Neither will attract the attention of HMRC, but were never intended in the relevant legislation.