Pension and job - salary sacrifice 40% tax relief?

Freddiefitz_2

I have a pension of £28000 and job £34100. Pension taxed at BR and my tax code for my job shows a reduced personal tax free allowance 590L  (so I will pay 40% tax on this at some point). 

I take advantage of salary sacrifice for several things. I am only getting tax relief at 20%. Payroll have said I am not paying 40% tax yet so should only get relief at the lower level until I do.
I thought everything was averaged out across the year and expected that 40% tax relief would be applied across the year too?
Am I losing out?

NoMore

If it is Salary Sacrifice, both you and payroll are wrong, you don't get any tax relief with Salary Sacrifice, instead you give up some of your salary and your employer pays into your pension instead on your behalf. This has the effect of you not paying Tax or Ni on the amount sacrificed in the first place. No you are not losing out, in fact you are making a slight gain as you also save NI. A contribution that would require Tax relief would not save you NI.

QrizB

For clarity, is £34100 your salary before salary sacrifice, or after?

chrisbur

Yes the tax allowances are spread out over the year; so if you had just one PAYE income then you would be paying some 40% tax from the start of the tax year.  
With two PAYE incomes you are paying 20% tax on the pension and 20% tax on your job on earnings over £5909 ish per year or £492 ish a month (assuming spread evenly.  As such there is no 40% tax being deducted but as your tax allowance is reduced this results in extra 20% tax being deducted.  If HMRC have done their sums correctly then this extra 20% tax you are paying will hopefully cover the extra tax that would have been deducted if it was just one PAYE income.
It is always going to be a bit of a guess when you have a situation like yours.  Full details would be needed to see how close they are.

Dazed_and_C0nfused

Freddiefitz_2 said:

I have a pension of £28000 and job £34100. Pension taxed at BR and my tax code for my job shows a reduced personal tax free allowance 590L  (so I will pay 40% tax on this at some point). 

I take advantage of salary sacrifice for several things. I am only getting tax relief at 20%. Payroll have said I am not paying 40% tax yet so should only get relief at the lower level until I do.
I thought everything was averaged out across the year and expected that 40% tax relief would be applied across the year too?
Am I losing out?

You have completely misunderstood how this works.

Firstly you aren't entitled to any pension tax relief whatsoever.  You are agreeing to a reduced salary in return for additional employer contributions to your pension.  And there is no pension tax relief available to you for employer pension contributions.

You are however avoiding paying tax and NI on the salary you no longer have.

As for the overall income tax saving maybe you should have a think about how much basic rate band you now have left for your pension 🤔

If you do the sums you will easily see you are not losing out on anything.

Your payroll contact either doesn't understand this or has not explained it very well.