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Salary Sacrifice - pensions

Is there a limit on the amount of salary sacrifice an employee can make?

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We have an employee who wants to do a salary sacrifice scheme into her pension. What I can't seem to find online is whether there are any limits on the £ amount that can be paid into a pension scheme?

Her annual wage is £35,027. If she were to only be paid the personal allowance of £11,850 and have the difference of £23,177 paid directly to her pension scheme - is this allowed or does HMRC restrict the amount that can be sacrificed?

Does anyone have any experience in running a salary sacrifice pension scheme that can help me out?

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By David Heaton
16th Oct 2018 12:58

FA 2004, ss 188 and 190 limit relief for the individual's contributions to 100% of earnings, but this does not include employer contributions (see s188(3)(b)). The annual allowance is likely to be more relevant, but even that doesn't apply if total pension inputs do not reach £40k. On your figures, tax relief should not be limited, provided the employer makes the payment directly, explicitly as an employer contribution (ie, the pension fund must know that the payment is not being made on behalf of the individual, so that it doesn't reclaim the basic rate tax).

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By Peter Cane
16th Oct 2018 14:01

You'd have to watch out for the National Minimum Wage threshold to ensure that the salary doesn't drop below that level

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By kestrepo
16th Oct 2018 15:37

Think it is also worth mentioning that if you use all of your £40K annual allowance for the current tax year you can also carry over any allowance you did not use from the previous 3 tax years.

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By frankfx
16th Oct 2018 16:40

There is no end of resource on the web concerning the question you have raised.

Your employee may have approached a pension adviser.

That advisor would be a brilliant starting point for advice , insight and guidance.
Indeed the ''advice'' may already have been provided in anticipation of a large pension contribution.

In the event that contributions are as significant as you indicate it is worth tapping into the 'human' resource .. the advisor.

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By ATTServices
17th Oct 2018 16:26

I'd want some/if not all the benefit of the N.I. saving that the myself and the company are making to be added on to the pension contribution (treated as an employer contribution).

You would need to ensure that they are paid minimum wage for the hours they work though.

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