Can someone please explain what the 2K threshold and NI contributions change means

zagfles

Albermarle said:

doodling said:

Hi,

zagfles said:

Companies have a long time to react to this. Wonder how many will start operating "reverse sal sac" schemes? Offer jobs paying eg £30k with £30k employer pension conts, with the option to trade pension conts for extra salary 

Im expecting HMRC (and maybe government through legislation) to be playing "whack a mole" with that and other, similar approaches for several years.

The exact definition of salary sacrifice previously hasn't really mattered since it didn't really affect how much tax was paid - it does now and the creative skills of those at the edge of the tax system will no doubt be put to full use.

I can see some employers, after consultation with staff, paying pay rises as increases in pension contributions for the next few years - that wouldn't be salary sacrifice either providing it wasn't done on an individual basis.

The fundamental problem is that the government has decided to tax based on how something is done, not on what is done - that approach will always create loopholes and unfairness.

The current system itself is also unfair,
Only about a third of private sector employees and 10% of public sector employees are actually in salary sacrifice schemes. Plus of course the self employed and minimum wage workers do not benefit.
So everybody else is paying their full NI , whilst those lucky enough to be in salsac schemes do not .
According to the budget data, 74% of basic rate taxpayers in salsac schemes will not be affected by the change.
So at a rough guess, about 12% of employees overall will be affected. Mainly those with the broadest shoulders I think.
On the other hand those with the broadest shoulders can still fill their boots with 40% tax relief on pension contributions, so could have been a lot worse.

They're not paying NI on the value of their employer's pension contribution. Unless, from 2029, it's created by sal sac. So as someone else mentioned, it's about taxing people on how something is done, not what is done. 

Take two people,
A: in a £50k job with a bare minimum AE scheme, and
B: in a £40k job with a gold plated public sector DB scheme. 

A wants a similar pension to B. This may cost say £10k pa extra into his pension. So he sal sacs £10k, leaving him with a post sal sac income of £40k. 

So A and B now have identical salaries, similar pension provision, yet A will pay NI on £48k, whereas B will only pay NI on £40k. Just because they got to the same place via different routes. 

af1963

Why not include person C in a £50k job, who also wants a good pension and also puts in £10k gross, but doesn't work for an employer who offers salary sacrifice, and who has always been paying the NI that person A is now being asked to (partly) pay ?

Or person D on minimum wage who doesn't get the option to salary sacrifice even if she wants to, and must also pay NI or her contributions.

BlackKnightMonty

Grumpy_chap said:

MeteredOut said:

I agree those working through UCs will want to find a way to avoid paying the EE NI.

OR, it will just mean that inside-IR35 contracting via UC's will simply cease to be a viable option. 
It is not a good option now, and the only real opportunity to make it work was SS pension. 
If it get's less attractive then the individuals will simply not be available and willing to take contract roles on an inside-IR35 basis.
It may be that individuals simply say they will go full-in staff and all that entails or definite outside-IR35 contract via Ltd Co, but not inside-IR35.  There seems to be no reason to accept the same taxation and restrictions as PAYE but without any of the certainty, career-path, training, annual leave, sickness pay, healthcare, etc...

Well said.

Sadly there’s very little sympathy for contractors as people just see their gross earning potential and are completely biased by it.

But inside IR35 UC contractors do experience a great deal of injustice. Not least having to pay the apprenticeship levy.

QrizB

af1963 said:

Why not include person C ...Or person D

Well, C is in almost the same position as A once salsac is restricted.

And D is quite a different case. Depending on exactly how many hours a year they work, D might benefit from receiving RAS tax relief on money they haven't actually paid income tax or NI on.

BlackKnightMonty

UK chancellor Rachel Reeves is to rush through laws to enact her Budget to reassure nervous markets that key tax increases will definitely be implemented even if they do not kick in for several years.

Legislation for a crucial £4.8bn tax rise on pension contributions made through salary sacrifice schemes is expected to be introduced before Christmas, even though it will not take effect until April 2029, officials said.

https://on.ft.com/4837XOi

zagfles

af1963 said:

Why not include person C in a £50k job, who also wants a good pension and also puts in £10k gross, but doesn't work for an employer who offers salary sacrifice, and who has always been paying the NI that person A is now being asked to (partly) pay ?

Or person D on minimum wage who doesn't get the option to salary sacrifice even if she wants to, and must also pay NI or her contributions.

Because that's the supposed "unfairness" that this change seeks to "fix" like the PP said. As if it makes everything fair. It doesn't. It just shifts the unfairness between A and C/D to between A and B. 

The only real fair way would be to charge NI on all employer pension conts above min AE requirements. Why should less NI be payable because some employers choose to pay remuneration through pension rather than salary. If they did this and reduced NI rates by whatever makes it fiscally neutral it could be very popular. Except perhaps when people with gold plated DB schemes see how much NI they're paying on their excellent pension provision. 

Eldi_Dos

Albermarle said:

Cobbler_tone said:

The general consensus in the workplace over the budget today. “Phew, we got away with it”

The budget was hyped up by the media and the Govt and I think some people were expecting some kind of Armageddon scenario.
It could be there will be a general sigh of relief and a rush to the Xmas shops .

Already been on Waitrose Cellar this morning, happy to be part of the pensioner led recovery, and at 25% off sure to bring a bit of cheer.

GibbsRule_No3.

As a Pensioner still working part time and now paying into a Stake Holder Pension via works SalSac, I don’t pay NI, will I pay NI if I’m still working in 2029? Not expecting to, as I’d be 75 by then.  Also maybe be a silly question as £2000 seems not much to pay in per year, I pay almost twice that with the Company addition. I assume it is per year rather than per month of £2000?

hugheskevi

GibbsRule_No3. said:

Also maybe be a silly question as £2000 seems not much to pay in per year, I pay almost twice that with the Company addition. I assume it is per year rather than per month of £2000?

There is an interesting note in the policy costing (page 48) which gives a strong hint at how this is planned to be implemented:

Employees may smooth their contributions between pay periods to make efficient use of NICs exemption on contributions under £2k.

I interpret that as saying the £2,000 allowance will be allocated on a pay period basis, so for those paid monthly they will be able to sacrifice up to £166.67 per month before NI becomes payable.

Cobbler_tone

hugheskevi said:

GibbsRule_No3. said:

Also maybe be a silly question as £2000 seems not much to pay in per year, I pay almost twice that with the Company addition. I assume it is per year rather than per month of £2000?

There is an interesting note in the policy costing (page 48) which gives a strong hint at how this is planned to be implemented:

Employees may smooth their contributions between pay periods to make efficient use of NICs exemption on contributions under £2k.

I interpret that as saying the £2,000 allowance will be allocated on a pay period basis, so for those paid monthly they will be able to sacrifice up to £166.67 per month before NI becomes payable.

Not great for my £3k a month….thankfully I’ll be 60 (if I get there) in 2029 and will be a case of “what’s work?” from late 26, early 27.
I’m sure many are in the same boat. Apart from the painful band freezes, they appear to always be one step behind me. More by luck than judgement!