Gov.uk auto enrolment misinformation

Gov.uk auto enrolment misinformation

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By petersaxton
17th Dec 2013 12:09

gov.uk

The website is not to be trusted.

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By Steve Kesby
17th Dec 2013 12:13

Can somebody point me...

... to the bit that's wrong?

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By Democratus
17th Dec 2013 12:26

? looks like...

... salary sacrifice or straightforward deductions to me. I'm with Steve.

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By carnmores
17th Dec 2013 12:37

well i havent had any yet

but i am surprised by the net pay arrangements , i presume its to cover higher rate tax payers getting relief as and when, but it looks like a recipe for disaster to me with every payroll dept mucking it up. is it not best to go down the relief at source route? otherwise its all fine!

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By Euan MacLennan
17th Dec 2013 12:38

Net pay definition

"Your employer takes your contribution and 'tax relief' from your pay before it is taxed" is not only gobbledygook, but wrong.  What your employer actually takes from your (gross) pay is your (gross) pension contribution.  End of story.  What the guidance seems to be trying to say is that all contributions are paid net (which is wrong), so the employer has to add the 'tax relief' to arrive at the gross contribution.

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By Steve Kesby
17th Dec 2013 12:46

Splitting hairs Euan!

I accept the gobbledygook point, but it's simple language for simple folk, either:

the employer will have a net pay scheme and the employee won't have to do anything further to get tax relief on their contribution, or

the employees' contributions will be paid net of basic rate tax and if they're basic rate taxpayers they won't have to do anything further. Action will be needed if they're higher rate taxpayers.

Or as Democratus observes they might even have a salary sacrifice arrangement, which puts then in largely the same position as a net pay scheme.

I can't actually see anything that amounts to inaccurate advice though?

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By carnmores
17th Dec 2013 12:49

yes but

i cant see how this will work for a higher rate taxpayer is the employer only to add basic rate contributions and then have that as a gross dedcution from salary for HRTaxpayers

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By Steve Kesby
17th Dec 2013 13:07

@ carnmores

There are two possibilities.

Occupational schemes can be set up as what are called "net pay". That means that the employer deducts the gross contribution from the employee's gross pay for tax purposes.

The amount after deducting tax is then the amount that PAYE gets operated on and the "gross pay" on the P60 at the end of the year will show the amount net of the gross pension contribution (hence the confusing "net pay" terminology - net of pension contribution).

So when the employee whacks that reduced figure on his tax return (as well as for PAYE purposes) all tax relief is given automatically (BR, HR, AR).

Under arrangements where that doesn't happen, the pension contribution is net of basic rate tax, which means the basic rate taxpayer is sorted through PAYE. The higher rate taxpayer will get a basic rate band extension though (via his Tax Return and/or PAYE code).

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By carnmores
17th Dec 2013 13:12

thanks Steve

my point was what is the gross pay, say the employee makes in cash terms a contribution of £80 , for a BRT its simple the gross contribution is £100, I peresume that it is the same for HRT and that relief is in effect given by extending the basic rate band. Not sure why there is a choice of methods it seems easier to me just to deduct the actual cash contribution and let the system work as it does now rather than faff about with all the grossng up which is surely a recipe for disaster

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By martin.jackson
31st Dec 2013 08:55

Net pay arrangements

There isn't "a choice of methods." 

Either the employer has an approved occupational pension scheme which is authorised to use the net pay arrangement (giving tax relief for employees' contributions via payroll) or the employer doesn't in which case relief is given in the fund.

The individual cannot choose.

For the vast majority the latter is appropriate.  It tends to be only large employers which have net pay arrangements.

Note: a salary sacrifice scheme is not a net pay arrangement. Under a salary sacrifice, the employer makes contributions, not the employee.

The guidance quoted by the OP is correct (though not especially clear).

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By mhtax
31st Dec 2013 09:13

Not new for auto-enrolment

This choice has been available to the employer as long as I can remember. (Too long really)

The schemes may have changed or been tweaked along the way but nothing is new.

The calculations on contributions are laid down (and explained to the employee ) by the pension company so the level of payroll staff input is minimal Carnmores as they just know the premium payable. If I remember rightly the software will ask for the type of scheme and apply the deduction before or after tax accordingly.

Problems come when people then try to put pension contributions on tax returns. I always ask to see a monthly payslip as well as the P60. If any extra tax relief is due there will be a difference in gross salary for tax as opposed to national insurance, and the payslip will show if the deduction is before or after tax/ni.

Any HR relief is given in extending the basic rate band as you say for the employee who makes net contributions after tax.

By excluding the premiums from the taxable pay under the net pay arrangement you can get the relief due, but if there are other sources of income there may still be an effect on the overall tax calculation. The premiums do not get entered on the tax return in these circumstances though. .

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By martin.jackson
31st Dec 2013 11:15

Net pay arrangements

It is not really a matter of choice for the employer - either the scheme is an approved occupational pension scheme or it isn't.

An employer cannot choose to operate the net pay arrangement unless they have had prior approval for their scheme.  In this context, I mean that it is an approved occupational scheme - not a personal pension, group personal pension, or stakeholder scheme.

I agree that it is wise to check the P60.  If the taxable pay shown is lower than the gross pay then this is an indicator that the net pay arrangement has been applied.  That is because the net pay arrangement does not affect the NIC calculation - only tax relief is given through the payroll, NICs are still charged on the full gross pay.  If the net pay arrangement has been applied then no further tax relief can be claimed via the tax return.

I think this is what mhtax intended to mean in his post, but that's not quite what he said: "If any extra tax relief is due there will be a difference in gross salary for tax as opposed to national insurance." 

On the contrary, if there is a difference between the taxable and NICable pay, then it is likely that the net pay arrangement has been applied and no further tax relief would be due.  If the taxable and NICable pay are the same, then further tax relief may be due because the net pay arrangement cannot have been applied.

 

 

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