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Are salary sacrifice payments earned income for the purposes of pension contributions?

Are salary sacrifice payments earned income for...

For 15/16, client has a gross salary of 76K. Also, pension contributions have been made via salary sacrifice of £54K but I am unsure whether these count as earned income for the purposes of calculating any further pension contribution - ie can he contribute 130K or only 76K? (He has unused annual allowance).

Sorry if this is a really stupid question but I just can't get a clear answer!

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25th Feb 2016 15:21

Sorry if this is a really stupid question but

Does he have a salary of £22K and pension contributions made by the employing company of £54K or does he have a salary of £76K and  pension contributions made by the employing company of 54K ? I am not sure from reading the question which of these is correct.

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By Diane
25th Feb 2016 15:38

...he has a salary of 76K and pension contributions of 54K.

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By JimFerd
25th Feb 2016 16:52

If he has legally given up his right to salary via a salary sacrifice, then he can't count it as salary.

The exempt BIK that is the employer pension contribution, then can't be added to that as part of his NRE.

He can therefore make contributions upto his salary of £76k.

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25th Feb 2016 16:57

Sacrifice

The key is in the word "sacrifice".

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By DJKL
25th Feb 2016 17:17

It's sad, its so sad, it's a sad, sad situation

lionofludesch wrote:

The key is in the word "sacrifice".

But then again, one could cite Elton

But it's no sacrifice
No sacrifice
It's no sacrifice at all

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By Diane
25th Feb 2016 17:14

....well I did say it was a stupid question, lionof whatever!

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25th Feb 2016 17:28

Not really stupid

It depends on how you specify the salary.

We specify a salary to one of our staff, this is his "pensionable salary". We calculate his employer contribution of 6% on this.  He chooses to give up some salary for additional pension contribution from us, the employer.

Using numbers from your example we would say salary is £130k, with a salary sacrifice of £54k. 
[edit: I am assuming his 6% I use in paragraph above is paid as part of this 'total contribution']

Benefit o employer is a saving of NI (some employers choose to share this saving with employee).

Benefit to staff member is tax saving at source.

So, have you structured this as a salary employee is sacrificing or a package of a salary and specified pension contributions?

 

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By tom123
25th Feb 2016 18:19

Agreed

gwilkinson wrote:

It depends on how you specify the salary.

We specify a salary to one of our staff, this is his "pensionable salary". We calculate his employer contribution of 6% on this.  He chooses to give up some salary for additional pension contribution from us, the employer.

Using numbers from your example we would say salary is £130k, with a salary sacrifice of £54k. 
[edit: I am assuming his 6% I use in paragraph above is paid as part of this 'total contribution']

Benefit o employer is a saving of NI (some employers choose to share this saving with employee).

Benefit to staff member is tax saving at source.

So, have you structured this as a salary employee is sacrificing or a package of a salary and specified pension contributions?

 

 

All our staff have the option of salary sacrifice for pensions. The company contribution is calculated on the pre-sacrifice amount - or else (perversely) the more you pay in yourself the less the company would pay in - if they worked from the sacrificed amount.

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By Diane
26th Feb 2016 17:17

But then you are double counting his 'salary' for NRE purposes surely? I'm fairly sure now that his NRE is 76K for pension purposes - I think you were implying that it could be 130K??

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By MJShone
26th Feb 2016 08:57

This may be a stupid answer, but...

Be careful to distinguish between the tax rules and the pension contribution rules. The pension provider for he employer's scheme might say they will accept the pre-sacrifice salary as pensionable income (see under Workplace pension schemes at https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye) - but that doesn't mean that the employee can use the pre-sacrifice figure to work out tax efficient contributions.  That has to be worked out on the "new" salary.

 

 

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26th Feb 2016 09:02

Why is it employees on this sort of level - salary wise and presumed competence therefore - and I'm not talking about the OP, are simply unable to accept that if it is a salary sacrifice then it is not their pension contribution and so they are NOT entitled to HR relief on it??

I'm talking about my client who has advised me not to contact HMRC and remove the HR relief which is being given (increased allowances) in his code.

Rant over. Sorry for hijacking, but it's a similar topic?

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By Alex999
26th Feb 2016 14:11

Annual Allowance £40k

Assuming he's not got any unused allowance carried forward, as £54k is over the annual allowance of £40k, he would be penalised for going over he annual limit?

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By Diane
26th Feb 2016 17:11

Yes, he's got plenty of unused pension allowance but thanks for pointing out.

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