Tax rises?

[ittony]

https://www.independent.co.uk/news/u...-b2861194.html

"The chancellor is said to be preparing to cap the amount of someone’s salary that can be sacrificed for extra pension contributions before national insurance contributions are incurred to £2,000 a year."

Bloody hell, that sounds like very bad news for contractors.

So someone taking 12k salary, 38k dividends and putting the rest in a sipp would take a 23% hit on that.

So 7k in extra taxes for someone paying out 80k and splitting it 12/38/30.

Plus another 3k if this 8% hike in divided tax comes to pass.

I'm going to be pretty upset if my tax bill goes up 10k next year.

[jamesbrown]

Bloody hell, that sounds like very bad news for contractors.

So someone taking 12k salary, 38k dividends and putting the rest in a sipp would take a 23% hit on that.

So 7k in extra taxes for someone paying out 80k and splitting it 12/38/30.

Plus another 3k if this 8% hike in divided tax comes to pass.

I'm going to be pretty upset if my tax bill goes up 10k next year.

Why? What has that got to do with salary sacrifice? Salary sacrifice involves employees (e.g., umbrella employees or regular employees) sacrificing some of their salary whereby their employer directs that sacrificed salary towards their pension, which reduces their taxable income and saves on EeNI. Meanwhile, the employer saves on ErNI, which they may or may not direct (in some fraction) towards the employee's pension, additionally. It has nothing to do with employer contributions more generally.

[ittony]

The term "salary sacrifice" describes a contractual arrangement to do what directors are able to do an an ad-hoc basis, i.e. make direct payments from the business to a pension, does it not?

It seems inconceivable the changes would target that particular arrangement alone, rather than the mechanism in general. Surely "salary sacrifice" is being used as a shorthand here, given that it's how most people experience it.

[jamesbrown]

The term "salary sacrifice" describes a contractual arrangement to do what directors are able to do an an ad-hoc basis, i.e. make direct payments from the business to a pension, does it not?

It seems inconceivable the changes would target that particular arrangement alone, rather than the mechanism in general. Surely "salary sacrifice" is being used as a shorthand here, given that it's how most people experience it.

Salary sacrifice is not a shorthand for anything, it is a specific arrangement whereby an employee sacrifices part of their salary in return for a benefit, specifically a pension payment of an equivalent amount by the employer, or possibly a larger amount of they route the ErNI savings too. With an employer pension contribution (for a contractor) more generally, there is no salary being sacrificed. The salary is the salary (typically ~ the personal allowance) and the employer pension contribution is typically much, much larger than the salary, probably £60k, which is the maximum amount on which CT relief is available, subject to the (straightforward) wholly and exclusively test.

As I said above, they may well attack pension contributions more generally, but salary sacrifice is a specific arrangement and it costs the Treasury more than standard employer contributions because it saves on EeNI and reduces the employee's taxable income, so it's no surprise they would begin there.

[ittony]

We all know all that thanks. They're clearly equivalent.

[BlueSharp]

Time to get the calculator out and work out if inside is now better than outside at the current market rates.

I'm assuming the salary sacrifice NI level is calculated based on PAYE salary. It would exclude income from dividends, so anyone operating an efficient div/salary split will pay 8% on salary contributions until they hit a combination of pension/salary of £50k.

I can't see Salary sacrifice being taxed, and employer pension contributions not being. This could be interesting for those with employer-matched contributions if they are aligned.

[Protagoras]

I can't see Salary sacrifice being taxed, and employer pension contributions not being.

I can!

After the increase on employers' NI I'd not expect a further hit on employers, especially given that the impact is clear from the unemployment figures.

There are many director type roles with very high employer pension contributions as part of the employment contract. Some of these will be party donors. I can't see these people being attacked. The reports thus far are all about SalSac, which is widely used to avoid some of the ridiculous and illogical marginal tax rates.

Whomever is considering SalSac as a target is missing the big picture. The easiest way to tax pension contributions further would be to reduce the £60k allowance threshold. Since most ordinary workers don't get near this level, this wouldn't be a tax on the so-called 'working people'.

[jamesbrown]

We all know all that thanks. They're clearly equivalent.

You clearly don't know that and you're also clearly wrong

[jamesbrown]

The easiest way to tax pension contributions further would be to reduce the £60k allowance threshold.

They may well do this too, it's been mooted for pretty much every budget I can remember.

[BlueSharp]

I can!

After the increase on employers' NI I'd not expect a further hit on employers, especially given that the impact is clear from the unemployment figures.

There are many director type roles with very high employer pension contributions as part of the employment contract. Some of these will be party donors. I can't see these people being attacked. The reports thus far are all about SalSac, which is widely used to avoid some of the ridiculous and illogical marginal tax rates.

Whomever is considering SalSac as a target is missing the big picture. The easiest way to tax pension contributions further would be to reduce the £60k allowance threshold. Since most ordinary workers don't get near this level, this wouldn't be a tax on the so-called 'working people'.

Exclude Employers NI from the calculation, from the salary sacrifice tax changes talking points, I've not seen it included.