Other salary sacrifice arrangements are possible. Concessional contributions (such as super guarantee contributions and salary sacrifice contributions) that exceed this cap will be taxed at your marginal tax rate plus an excess concessional contributions charge. HMRC will not comment on a proposed salary sacrifice arrangement before it has been put in place. The following guides contain more detailed information: Guidance updated to include provision for coronavirus (COVID-19). %%EOF You need to pay and deduct the right amount of tax and National Insurance contributions for the cash and benefits you provide. If this means stopping or changing a salary sacrifice arrangement, you must also update your employee’s contract and your payroll software. The Government’s co-contribution scheme. If you enter a salary sacrifice arrangement you … Salary sacrifice contributions are taxed at 15% when they are received by your superannuation fund. However, employers should always check with their scheme provider to make sure any such arrangements are allowable. The recent Anglo Platinum case has put salary sacrifice arrangements under the spotlight once more. As an employer, you can set up a salary sacrifice arrangement by changing the terms of your employee’s employment contract. This is a personal contribution you make on top of your employer’s compulsory Superannuation Guarantee (SG) payment, which is 9.5% of your salary. Universities Superannuation Scheme (USS) Employees on grades 6B and above … Where an employee has been automatically enrolled into a workplace pension scheme, it will be a registered pension scheme for tax purposes. As an employer, you can set up a salary sacrifice arrangement by changing the terms of your employee’s employment contract. 6:;R��1�:@��' T?�~.֩W\�T%]��W[�rvO���%c�W�J0��[ύ� gw(Hj:b��i�*�`��蹮��P�B��=a��4�)����������_�y#9Lw� ��9�.�< �}������ �oȝ��e!މ�a^$�T�Rc^���䝰�Lӽ"���Pb-^��x�ڰ��y:�(XϮ�s�S�`(�Yt�J���Y۰V��� TA�e��\�� This only relates to specific arrangements with an employee, not to your overall salary sacrifice policy. Salary sacrifice into super Salary sacrifice is an arrangement with your employer to forgo part of your salary or wages in return for your employer providing benefits of a similar value. We’d like to set additional cookies to understand how you use GOV.UK, remember your settings and improve government services. This means tax relief cannot be claimed because the employee has been taxed on a lower amount of salary. It may be necessary to change the terms of a salary sacrifice arrangement where a lifestyle change significantly alters an employee’s financial circumstances. It can cause some employees to lose their entitlement altogether. No tax is charged on the contributions an employer pays to a registered pension scheme for an employee. If, for example, the non-cash benefit is a pension contribution, your employer would pay this, along with a contribution they might make, directly into your pension pot. For example, an employer might agree to pay more than the minimum amount required, to cover some or all of the employee’s contribution. These contributions are generally taxed at a flat rate of 15% in the fund and therefore they may be taxed at a lower rate than your normal income tax - which means you can save money now for the future*. You will save 13.8% of the amount sacrificed in NICs, while your employees will save between 2% and 12% of the amount they sacrifice, depending upon their earnings. Effectively the employer then pays the members’ pension contributions for them, however their salary is reduced by the amount of thosecontributions. Such payments can be based on the notional salary or the new reduced cash salary, but this must be made clear to the employee. However, this may be a tax effective way to save for your retirement if your personal tax rate is greater than 15% as the amount going into your super may be more than the amount your take home pay is reduced by. endstream endobj startxref 1 Because the extra payments are taken out of your salary before you’ve paid income tax, you only pay 15% tax instead of your marginal tax rate (which could be as high as 45% plus the Medicare Levy of 2%). For the cash component, that means operating the PAYE system correctly through your payroll. Reporting requirements for many non-cash benefits are different to those for cash earnings. You give up part of your salary and, in return, your employer gives you a non-cash benefit, such as childcare vouchers, or increased pension contributions. Jenny opts for salary sacrifice and will receive SG contributions based on her pre-sacrifice salary. You then pay the sacrificed amount to your employee's super fund on their behalf. First, you cannot salary sacrifice unless your employer is prepared to do it, and secondly there is a slight possibility that you could lose out if your employer fails to make the contribution. Simple salary sacrifice and SMART salary sacrifice. Where an employee opts out of a workplace pension scheme, it is possible that they will have received reduced earnings under the salary sacrifice arrangement. Pension Exchange is a salary sacrifice scheme that will result in an increase in your take home pay by reducing National Insurance contributions. They both earn $120,000 a year, and want to contribute an extra $12,000 pa ($1,000 per month) to superannuation as concessional (pre-tax) contributions. How does this affect USS pension benefits? You'll need to calculate the value of a new salary sacrifice arrangement by comparing the value of the benefit and the amount of salary sacrificed. However, it’s important to consider your concessional contributions cap. The validity of a salary sacrifice arrangement was central to the Anglo Platinum case in the sense. This has been updated for the current tax year of 2020/21. The employee may then become entitled to a lower cash salary. It is simple to follow and shows how you can benefit from doing this. 256 0 obj <>stream This is currently $25,000. Salary sacrifice The amount sacrificed shifts from being taxed under the PAYE system to the ESCT system. Salary sacrifice can be useful in the following ways: • You and your employees can both make a saving in national insurance contributions (NICs). Existing arrangements will be affected by this change in 2018 or 2021, depending on the benefit. When you salary sacrifice into super, you make an arrangement with your employer to pay some of your salary or wages, before tax is deducted, into your super account instead of your bank account. Find out more about tax relief. Exemptions on benefits in kind do not apply to salary sacrifice schemes. Your employer may offer you the option of salary sacrifice as part of their pension scheme. Employers usually decide how earnings related payments such as occupational pension contributions, overtime rates and pay rises are calculated. Salary sacrifice arrangements can allow opting in or out in the event of lifestyle changes like these. Participation in USS and SAUL operates under PensionsExchange (a salary sacrifice scheme). In many cases, your employer might continue to pay their national insurance contributions in full, with the element linked to your salary sacrifice also going towards your pension. Salary sacrifice payments; Lump sum contribution you can make as a tax deduction. If the employee sacrificed salary of £5000 in return for a pension contribution by the employer, the employer would pay £5000 into the pension, instead of paying it to the employee and the employee would receive a salary of £5,000 less. Salary sacrifice is perhaps more relevant to employers with a total remuneration philosophy. If the employer ‘makes good’ that shortfall to the employee then the payment should be made subject to tax and National Insurance contributions. A way to save and reduce your income tax and National Insurance. To be satisfied that the change has been effective at the right time and not applied retrospectively, HMRC would need to see: You must stop giving your employee childcare vouchers with income tax and National Insurance reliefs if they tell you they’ve started using the new Tax-Free Childcare scheme. In the past, the term salary sacrifice was mainly used to refer to the giving up of rights to future cash remuneration in return for the employer’s contributions to a registered pension scheme. • Other salary related elements of the individual's employment package, such as contractual pension contributions, life assurance cover, PHI cover, overtime pay or future salary rises, may be affected by the salary sacrifice. Find out how to set up salary sacrifice arrangements and calculate tax and National Insurance contributions on them if you're an employer. 209 0 obj <> endobj Salary sacrifice schemes mean that an employee gives up part of their cash pay and instead they agree to receive some sort of non-cash benefit. Voluntary Salary Cap Scheme Pays Guidance and financial advice; Line graph. Keep up to date with our regular member articles. You can also use the payrolling benefits and expenses online service to show you’re collecting tax and benefits through your payroll. Reduce your taxable income Don’t worry we won’t send you spam or share your email address with anyone. In this case, an employer pension contribution. A salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates. As a general rule, if an employee swaps between cash earnings and a non-cash benefit whenever they like, any expected tax and National Insurance contributions advantages under a salary sacrifice arrangement will not apply. If there is a point of legal uncertainty you can contact the HMRC clearance team. Information for employees added to guide. You can also choose to use the savings generated by salary sacrifice to increase your pension Salary sacrifice can affect the amount of statutory pay an employee receives. An employee can 'sacrifice' part of their salary or wages into super contributions under an agreement with you. If so, you can give up part of your salary (your sacrifice), which your employer then pays into your pension, along with their contribution to the scheme. Your guide to salary sacrifice 2 A salary sacrifice arrangement lets you enhance your employees’ benefit package – at no extra cost to you. ... the government tops up the employee’s contribution by 20%. Your employee needs to agree to this change. The idea behind this is quite simple. A salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates. Rather than you paying monthly pension contributions, SOAS will deduct the amount equal to your pension contributions from your monthly salary, and pay your pension contributions on your behalf. We use some essential cookies to make this website work. The second entry in the table Examples of salary sacrifice has been amended to correct the explanation of how much of the salary is subject to tax and National Insurance contributions. Jenny opts for salary sacrifice and will receive SG contributions based on her pre-sacrifice salary. As the name suggests it involves employees giving up part of their salary, but in return for another benefit. What else do I need to consider? Often, employers will use a notional level of pay to calculate employer and employee pension contributions, so that employees who participate in salary sacrifice arrangements are not put at a disadvantage. If you set up a new salary sacrifice arrangement, you’ll need to work out the value of a non-cash benefit by using the higher of the: For cars with CO2 emissions of no more than 75g/km, you should always use the earnings charge under the normal benefit in kind rules. It will take only 2 minutes to fill in. h�bbd```b``���A$C�d������� �i:�]V��sw�H� ���� �`�{��~D Salary sacrifice arrangements have no effect on the Employers must put procedures in place to cap salary sacrifice deduction and ensure NMW rates are maintained. What are the downsides of salary sacrifice? The South African Revenue Service (SARS) questioned the validity of the arrangement and Anglo Platinum had to prove that the arrangement was legitimate and carried out in accordance with what was agreed when the arrangement was entered into. “Salary sacrifice” If an employee agrees not to receive part of the employee’s remuneration as taxable pay in exchange for a contribution by the employer to a superannuation scheme (‘salary sacrifice’), tax savings may arise as follows: 1.1 To a KiwiSaver Scheme: The “specified superannuation contribution … After salary sacrifice Using salary sacrifice, the employee agrees to exchange £1,412 and you agree to pass on 100% of your NI savings. Salary sacrifice isn’t for everyone – it’s unavailable if it reduces earnings below the minimum wage. Brian decides to make his own contributions and later claim them as a tax deduction. %PDF-1.6 %���� If you salary sacrifice super contributions you will have less take home pay each fortnight. You can calculate results based on either a fixed cash value or a certain proportion of your salary. Salary sacrifice guide Last updated: June 2019 bsg@unison.co.uk 2 What is a salary sacrifice arrangement? For any non-cash benefits, you need to work out the value of the benefit. *These figures are based on the tax and National Insurance rates for 2020/21. The impact on tax and National Insurance contributions payable for any employee will depend on the pay and non-cash benefits that make up the salary sacrifice arrangement. Amendments made to the section headed changing the terms of a salary sacrifice arrangement. HMRC Clearances Team email address has been updated. The pension contribution (your salary sacrifice) won’t be subject to income tax or national insurance contribution payments. If a member dies in SAUL service having at any point participated in salary sacrifice, the Trustees of SAUL would refund all contributions made by the member and the Members Normal Contributions made by the employer on the member’s behalf as part of the salary sacrifice arrangements. We’ll send you a link to a feedback form. 0 In these examples, none of the employer NI saving is added to the pension contribution after sacrifice. for a non-cash benefit. By sacrificing salary and receiving a higher employer contribution, an employee receives lower immediate income, but higher deferred income. Information on Tax free childcare and HMRC clearance team contact details have been updated. If a salary sacrifice arrangement reduces an employee’s average weekly earnings below the lower earnings limit, you don’t have to make any statutory payments to them. endstream endobj 210 0 obj <>>>/Filter/Standard/Length 128/O(�\n��f*��D�\r�Ր�� XH4�� \(��\n���)/P -1052/R 4/StmF/StdCF/StrF/StdCF/U(xr���\(p~��5�5]w )/V 4>> endobj 211 0 obj <>>> endobj 212 0 obj <. A guide for employees – salary sacrifice and pensions The purpose of this table is to demonstrate the amount by which your net (take home) income increases under salary sacrifice whilst maintaining the same total pension contribution. Salary sacrifice means you can exchange part of your salary in return for a non-cash benefit from your employer. The only benefits you do not need to value and do not have to report to HMRC for a salary sacrifice arrangement are: If you set up a salary sacrifice arrangement with an employee before 6 April 2017, you can continue to calculate the value of the benefit in the same way until April 2021. In addition, your employer will not have to pay their Employers’ National Insurance contributions on the … It may reduce the cash earnings on which National Insurance contributions are charged. Employees may therefore pay, or be treated as paying, less or no National Insurance contributions. Once you accept a salary sacrifice, your overall pay is lower, so you pay less tax and National Insurance. If your employee wants to opt in or out of a salary sacrifice arrangement, you must alter their contract with each change. To help us improve GOV.UK, we’d like to know more about your visit today. We also use cookies set by other sites to help us deliver content from their services. Employers must put procedures in place to cap salary sacrifice deductio… Brian decides to make his own contributions and later claim them as a tax deduction. In general, benefits must be reported to HMRC at the end of the tax year using the end-of-year expenses and benefits online form. A Salary sacrifice pension allows you to use the money you save on National Insurance Contributions and income tax to top up your pension and increase its value over time. The amount they receive may be less than the full standard rate, or they may lose the entitlement altogether. A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return The Childcare Choices website gives employees more information on support for childcare costs. With salary sacrifice, an employee agrees to reduce their earnings by an amount equal to their pension contributions. �����Hau��$���������nK���q ��L^o m�� All content is available under the Open Government Licence v3.0, except where otherwise stated, Change the terms of a salary sacrifice arrangement, Work out the effect on tax and National Insurance contributions, Effect of salary sacrifice on payments and benefits, payrolling benefits and expenses online service, salary sacrifice: contributions to a registered pension scheme: income tax effects, income: employment income rules: salary sacrifice, Expenses and benefits for directors and employees - a tax guide: 480, Coronavirus (COVID-19): guidance and support, Transparency and freedom of information releases, Childcare voucher to the same value (not including new entrants), Only £300 is subject to tax and National Insurance contributions, childcare vouchers are exempt from both tax and Class 1 National Insurance contributions up to a limit of £55 per week, Childcare vouchers to the same value(not including new entrants), £295 is subject to tax and National Insurance contributions -, £5,000 employer contribution to registered pension scheme, No employment income tax or National Insurance contributions charge to the employee - the full amount is invested in the pension fund, changes to circumstances directly arising as a result of coronavirus (COVID-19), childcare vouchers and directly contracted employer provided childcare that started on or before 4 October 2018, bicycles and cycling safety equipment (including cycle to work), school fees (even if varied, renewed or modified for the same child and school), directly connected to a change of circumstances as a result of coronavirus (COVID-19), connected to an employee’s statutory sick pay, connected to an employee’s maternity, paternity, adoption or shared parental pay, out of the control of the employee and employer (like a damaged contract), evidence of the variation of terms and conditions (if there is a written contract). Salary sacrifice lets you make contributions to your pension and helps to save on National Insurance at the same time. From 1 … There are some exceptions to this, Employment Income Manual 42755 gives more information. The terms of your Pension Scheme membership are determined by conditions set out in your contract of employment. 1. Please note: By selecting Opt Out you are only opting out of Pension Salary Sacrifice as the method for collecting your employee pension contributions. They both earn $120,000 a year, and want to contribute an extra $12,000 pa ($1,000 per month) to superannuation as concessional (pre-tax) contributions. You can change your cookie settings at any time. Because of the savings you can make, pension contributions made in this way are more tax efficient than the personal contributions you’d ordinarily pay into your pension. Salary sacrifice may affect an employee’s entitlement to contribution based benefits such as Incapacity Benefit and State Pension. Your employee needs to agree to this change. It applies to: The arrangement will be subject to new rules if it is varied, renewed or modified, unless the change is: Most existing arrangements set up before 6 April 2017 are automatically subject to the new rules from 6 April 2018. Salary sacrifice can affect an employee’s entitlement to earnings related benefits such as Maternity Allowance and Additional State Pension. introduce salary sacrifice in respect of the ordinary USS contribution paid by members, normally 6.35% of salary. The employer decides whether salary sacrifice affects contributions into a workplace pension scheme. Salary Sacrifice, a Pension Salary Sacrifice Opt Out Form which you should retain a copy of and complete in the event you no longer wish to make your pension contributions via salary sacrifice. Your employee’s contract must be clear on what their cash and non-cash entitlements are at any given time. A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit. There may be benefits to both of you in that: for your employee. 234 0 obj <>/Encrypt 210 0 R/Filter/FlateDecode/ID[<7A26AB71342F47258EA90A7F137E1D95><34CBFEFD05F3B7469301D845C14E7710>]/Index[209 48]/Info 208 0 R/Length 121/Prev 345468/Root 211 0 R/Size 257/Type/XRef/W[1 3 1]>>stream