Reply to: Budget Day

[jamesbrown]

For real? Can someone doing SalSac not switch things around and do it as an employer contribution instead? Obviously needs the employer to play along but in theory at least?

Not easily because there are anti-avoidance rules on the tax side, with a narrow carve out for the existing SalSac arrangements that will disappear, and issues on the employment law side too w/r to contract variations, and that's assuming you have an employer that wants the same thing (perhaps more likely for an umbrella than a regular employer, but the hoops are probably too great - we'll see how it pans out, though, and it doesn't take effect until 2029, so there are several years where you can max out if not already maxed out).

The other thing to bear in mind, as others have pointed out, is that 2029 is an election year and the next gov't may be promising very different things that are relevant to contractors and the scale of umbrella employment, such as IR35, among other things. Of course, there are promises and there is delivery.

[Protagoras]

For real? Can someone doing SalSac not switch things around and do it as an employer contribution instead? Obviously needs the employer to play along but in theory at least?

Apparently not, since this would fall foul of Operational Remuneration Agreement (OpRA) rules as per the post from jamesbrown above.
Bye bye brollies.

[willendure]

So the pension changes are targeting SalSac only. Bad news for regular employees (inc. umbrella employees), but no changes to employer contributions more generally.

For real? Can someone doing SalSac not switch things around and do it as an employer contribution instead? Obviously needs the employer to play along but in theory at least?

[Protagoras]

I'm sure there will be attempts. However, among other things, there is ITEPA Part 3 Ch. 2 69A, also known as the Operational Remuneration Agreement (OpRA) rules. Some background here:

Thanks for sharing, I'd not come across this.
I predict lots of private-sector retirements in 2029.

[jamesbrown]

When this was first mentioned, I wondered what there is to stop a company having a range of employment contracts with different pension contributions and salary levels but not actually constituting SalSac.

Many companies where I've worked have had workers on 'personal contracts' at senior levels and a general contract for others. Maybe pension contribution rate will become a differentiating criteria for selecting an employer or umbrella company (later there would presumably be a Pension Charge variant of the Loan Charge!)

Of course, those with LtdCos can still pay whatever they want as pension contributions, so that the 'outside' contract becomes even more valuable.

I'm sure there will be attempts. However, among other things, there is ITEPA Part 3 Ch. 2 69A, also known as the Operational Remuneration Agreement (OpRA) rules. Some background here:

https://www.gov.uk/hmrc-internal-man...anual/eim44010

This is an anti-avoidance measure designed to prevent someone from foregoing salary for a tax advantage, except for a small list of approved purposes, such as a pension contribution (which will disappear in 2029, above a threshold amount). The effect is to apply the higher rate of tax that would otherwise have been due. Any conspiracy to circumvent the new SalSac rules will need to get around OpRA on the tax side, as well as any employment law implications.

[Ketto]

Good that it is being delayed until 2029 at least, maybe it gets binned before then. Very weird thing to be implementing just as you are trying to get re-elected mind! Maybe it is a ruse to get the fiscal rules to add up now - in the hope that the sunlit uplands have started before 2029 and they can cancel it as part of an election campaign.

[Protagoras]

There is a question about whether employers will be able to circumvent this, such as by changing contractual terms so that salary is not forgone (and employer contributions increased for a reduced contractual salary), but that isn't so easy as there are employment law and other considerations that would require broad agreement from the workforce (i.e., they cannot be decided per employee).

When this was first mentioned, I wondered what there is to stop a company having a range of employment contracts with different pension contributions and salary levels but not actually constituting SalSac.

Many companies where I've worked have had workers on 'personal contracts' at senior levels and a general contract for others. Maybe pension contribution rate will become a differentiating criteria for selecting an employer or umbrella company (later there would presumably be a Pension Charge variant of the Loan Charge!)

Of course, those with LtdCos can still pay whatever they want as pension contributions, so that the 'outside' contract becomes even more valuable.

[milanbenes]

Is the "clear message" that owners of low-end Porsches for the mass affluent will be babied a little while longer?

certainly looks that way lol

we're in it together

Milan.

[jamesbrown]

I allowed myself a slight smirk as I wrote it

I still can't work out if my £20k employer contributions are now subject to NI from myCo. It appears that both Employer and Employee NI are being charged; if that's the case, it could be an extra £2000 NI bill.

They are not. There are no changes to the taxation of employer contributions more generally - the budget speech was explicit about that. I believe I said this to you before, but SalSac is a very precise type of arrangement whereby salary is foregone for an increased pension contribution and that costs the Treasury a lot more than traditional employer contributions, which are not taken from foregone income. This is why it was targeted.

There is a question about whether employers will be able to circumvent this, such as by changing contractual terms so that salary is not forgone (and employer contributions increased for a reduced contractual salary), but that isn't so easy as there are employment law and other considerations that would require broad agreement from the workforce (i.e., they cannot be decided per employee).

[sadkingbilly]

[Dorkeaux]

Yes, from 2029. This allows those who can to max out SalSac before that and then retire. After that, the limit applies to both employer and employee NI, so will be a further disincentive for Umbrella 'employment'.

Other details include 2p extra on savings income from April 2027, that's 2% over one's marginal rate. There really is no incentive to save outwith ISAs (limit reduced to £12k for cash ISAS for the under 65s).

Thanks for pointing this out.

Personally, maxing out my SalSac on the way to retirement is part of my plan.
I've just wound down my company and was deeply unhappy about them grabbing more money that was headed for my pension.

I've checked this, and sure enough does not kick in until 2029. I can live with that, personally.

In a more general sense, I believe that and the restrictions on cash ISAs will actively discourage people from paying into their pensions. Self defeating, it won't raise as much tax as predicted and result in more pensioners relying on benefits. Seems mad.

[BlueSharp]

I see what you did there.

I allowed myself a slight smirk as I wrote it

I still can't work out if my £20k employer contributions are now subject to NI from myCo. It appears that both Employer and Employee NI are being charged; if that's the case, it could be an extra £2000 NI bill.

[openstrike]

a net zero change

I see what you did there.

[BlueSharp]

"freezing fuel duty and raising tax on electric vehicles simultaneously"

this is awesome and sends a clear message

Milan.

The cut on green levy should make it a net zero change for the EV.

[Protagoras]

So the pension changes are targeting SalSac only. Bad news for regular employees (inc. umbrella employees), but no changes to employer contributions more generally.

Yes, from 2029. This allows those who can to max out SalSac before that and then retire. After that, the limit applies to both employer and employee NI, so will be a further disincentive for Umbrella 'employment'.

Other details include 2p extra on savings income from April 2027, that's 2% over one's marginal rate. There really is no incentive to save outwith ISAs (limit reduced to £12k for cash ISAS for the under 65s).