Salary Sacrifise On Bonus

Joey122

Hi All,

Imagine I d like to waive my bonus into my pension using salary sacrifise.

Also say my bonus was 100 pounds for arguments sake.

The employer does NOT share any of the savings they make by me doing this.

Is it fair to say that the pension will be credited by 100 pounds? No tax / national insurance taken ?

Are there any other rebates which should take place?

Do you need to ask Inland revenue to calculate the tax as you might be due a refund?

NOTE : The bonus is more then 100 pounds - I have used this number as an example

CLAPTON

I'm not sure what you mean by salary sacrifice but
if you contribute 100 to a pension then its tax free although you will pay NI.

So if it is deducted at source by your employer then you need do nothing at it will automatically be deducted before tax.
If you pay into your own fund from taxed income then you will need to reclaim tax only if your tax band is 40%.

Joey122

But thats the thing - You dont pay NI (and apparently you should'nt pay NI).

tinkerbell84

salary sacrifice is NI free and tax free, but there are probably limits as to how much you can sacrifice. my employer runs it as a monthly commitment, for childcare, and the max allowed is £243 per month. you couldn't do £5k one month and not the next, that's not the point of the scheme. not sure if that's a government limit (i thought it was).

your employer doesn't have to share their savings with you. many employers will encourage SS as it lowers their NI and tax bills too.

Joey122

TinkerBell,

Have you used this? In my example if you put 100 pounds to SS, then all the 100 pounds goes, but is there any further rebates?

Thats the question?

tinkerbell84

Joey122 wrote: »

TinkerBell,

Have you used this? In my example if you put 100 pounds to SS, then all the 100 pounds goes, but is there any further rebates?

Thats the question?

no, there's nothing to rebate! you don't pay any tax or NI on it!

i haven't used it, but i set up my employer's scheme

tinkerbell84

also, i just wanted to say that you've posted lots of complex questions on this site, and lots of people have taken time to answer you. from what i've seen you've not once thanked anyone - either by pressing the 'thanks' button, or by saying thank you.

maybe it's not intentional (and i'm no thanks wh0re), but it does affect the way people think about you.

jamesd

Joey122, say you take the bonus as salary. The employer must then pay you that bonus and pay 12.8% employer's national insurance on it. If you put it into the pension, the employer saves that employer NI and it is worth asking them if they are interested in splitting that saving as an incentive for employees to do this and save them more money in the future.

If you're a basic rate tax payer the employer can correctly point out that you're also saving the significant 11% employee NI cost. But if you're above the NI upper earnings limit (a little below the higher tax rate threshold) the employee NI is only 1% and you don't gain much from that. So it makes particular sense for the employer to split the 12.8% employer NI for those earning above the UEL.

If the employer offers no incentive, the employee can simply take the bonus as salary, cause the employer to have to pay 12.8% NI and then put the money in their own pension anyway, losing the 1% employee NI (if above UEL) but still getting the full 40% tax rebate. Small 1% loss for the employee but far more significant 12.8% extra cost for the employer. So a significant reason why the employer should be interested in encouraging employees to do this in a way that is as efficient for the employer as it is for the employee.

The employer already committed to paying the 12.8% employer NI when the bonus was awarded, so this is just an opportunity for the employer to reduce the cost of that bonus.

tinkerbell84

jamesd wrote: »

Joey122, say you take the bonus as salary. The employer must then pay you that bonus and pay 12.8% employer's national insurance on it. If you put it into the pension, the employer saves that employer NI and it is worth asking them if they are interested in splitting that saving as an incentive for employees to do this and save them more money in the future.

If you're a basic rate tax payer the employer can correctly point out that you're also saving the significant 11% employee NI cost. But if you're above the NI upper earnings limit (a little below the higher tax rate threshold) the employee NI is only 1% and you don't gain much from that. So it makes particular sense for the employer to split the 12.8% employer NI for those earning above the UEL.

most won't though, because part of the 12.8% saving is spent administering the scheme (often up to half of it).