Must admit I don't know much about this but one of my clients has two directors who in 2011/12 will hit the 40% tax band due to the lowering of this from 37400 to 35000 (without their salaries increasing). One has young children and worries about losing his child benefit in, I think 2012, so they are looking at salary sacrifice where the sacrified salary will be paid into a stakeholder pension.
Anyone know how I would account for this? I know that they will have to have their terms in their contracts re-written and I know that HMRC should be informed, what I'm not too sure of is the pension side. Currently the stakeholder pension is taken from net salary and the pension provider adds on the 20% to gross it up. To administer it I inform the pension provider of the amount deducted from net salary and the date it was deducted. How will this work with a salary sacrifice as the pension the company is passing over to the provider will not be the amount taken from the net salary (or will it?)or would I just put the normal percentage as the employee contribution and add the salary sacrifice to the employer contribution?
I can't seem to get my head round it - not very up on pensions in their various guises.
-- Edited by semsley on Thursday 31st of March 2011 10:12:37 PM
I think it should be pretty straight forward, as the salary simply gets reduced, by say £100 p/m, and the company then pays that £100 into the pension scheme.
If the employee was paying from post tax earnings, they would only have to pay £80 and the pension scheme would gross this up to £100.
If the company are now paying this, they pay £100 to the pension company, so same amount invested. The company then gets tax relief on the pension contribution.
The saving that traditionally comes from salary sacrifice is in NI. The employee doesn't suffer e'ee's NI, and the company saves on e'ers NI.
Thanks Nick When we get it all agreed I'll pay the pension provider the sacrifice as a company contribution. It will save us NI but tax relief is not applicable cos it's a not for profit charity.
They cannot do this on a stakeholder pension Im afraid as its taxed at source. They need to be in private company pension (HMRC approved). A salary sacrifice scheme is is only good for this if it is reducing your gross salary (hence new contract) but to be honest pensions do not work under salary sacrifices so no new contract is needed. This new child benefit scheme being brought in means that it is under their "taxable" income (but not confirmed as yet what it will mean)?..
All they need to do is write a letter to the company requesting they "sacrifice £xxxx" of their salary so their employer may pay gross contributions on their behalf into the pension. Then contact the pension provider and they will happily change the contribution to employer only contributions.
I operate a salary sacrifice scheme with a stakeholder pension. The link below is a useful tool as it helps to explain to employees how the figures are calculated. It's not easy trying to explain in words!
When the details are entered, the calculation clearly shows the 'before' and 'after' figures.
I don't operate a Scottish Life scheme but their link seems to be very good.
That looks excellent Clott, thank you I'll get the employee to have a look (or maybe not as you only have to mention pension or tax to him and he turns to jelly). We even have to have the phone on speaker so that he can authorise me to help him when talking to his pension provider or HMRC!!!!!
Sparkly, he has a stakeholder into which he pays from his post tax salary and we pay this over to the provider and we also pay a company contribution. On his employee contribution the provider grosses this up. When he "sacrifices" his gross pay will be less and the company will pay this full gross amount to the provider. It is possible we have spoken with the provider. He will, however, have to have a amendment to his contract detailing the sacrifice.
