Umbrella Pension Salary Sacrifice Adjustments

[foxyy]

I spoke to a tax advisor about this and their guidance contradicts what the umbrella company and others on this forum have said.

For context, my umbrella salary sacrifice agreement signed at the beginning (first contract, which only lasted 3 months) states the following:
“If you do wish to change the terms of the arrangements (pension salary sacrifice) this can be considered where a change of lifestyle significantly alters your financial circumstances such as marriage, divorce or change to a key
contract.”

The umbrella company and others on this forum suggest that a contract extension or new contract would be considered an allowable significant change (“change to a key contract”), including to increase the salary sacrifice amount (where your financial circumstances may have actually improved, not deteriorated) regardless of when the previous salary sacrifice amount was agreed (possibly only a few months previously, as in this case).

The tax advisor I spoke to suggested that normally umbrella employment contracts are overarching employment contracts which do not end with each assignment (client contract). Therefore, the employee position is secure as long as the contract variations (such as pension salary sacrifice) last for at least a year.

This uncertainty could be extended out to other key events or changes in circumstances, such as:
- Reduced (or increased) rate on a new / extended client contract.
- Start of a new tax year.
- Changes to the maximum allowable, annual pension contribution amount (currently £40k).

This again seems like one of those grey areas where contractors need to tread cautiously without any certainty, even when operating inside IR35 (or forced to go brolly by the end client).

I’d be interested to hear if anyone else has faced these kind of decisions or issues recently?

[Acme Thunderer]

In the link above it states:
"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."

It talks about"lifestyle changes" being legitimate reasons, but if you are signing short term contract extensions each time and decide to vary the amount each time, could this be seen as the employee making changes "whenever they like"?

No it isn't whenever you like. I can only change at the start of the new tax year or at contract extension. I don't control contract extensions. An extension is a change in circumstances. Before you got it you were going to be out of work

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[rootsnall]

I think as long as you comply with Min Wage rules you can put as much as you want in. I have had a setup where the umbrella did a calc of hours worked times NMW and the rest into my SIPP. But I just got transferred to another umbrella who are paying 83% of gross into the SIPP. I think the latter is a few bob less into the pension but not worth moaning about.

[foxyy]

I have just done this with my umbrella company. Got an extension and asked them to increase the amount I pay into my pension by salary sacrifice. No problems at all


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From an umbrella perspective it seems fine for me too, but I guess they aren't the ones who would be penalised if HMRC decided to look into the salary sacrifice arrangement.

In the link above it states:
"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."

It talks about"lifestyle changes" being legitimate reasons, but if you are signing short term contract extensions each time and decide to vary the amount each time, could this be seen as the employee making changes "whenever they like"?

[Acme Thunderer]

I have just done this with my umbrella company. Got an extension and asked them to increase the amount I pay into my pension by salary sacrifice. No problems at all


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[foxyy]

It was mainly the information on this HMRC link which made me wonder how flexible this is supposed to be and therefore how often I should consider changing the pension salary sacrifice amounts.

Salary sacrifice for employers - GOV.UK

Can't find any official guidance related to umbrellas and how it should work with them.

[northernladuk]

You should be able to change your payments to anything you want whenever you want as long as the T&Cs of the umbrella and provider allow.

I think you are way over thinking this.

[foxyy]

I've recently went contracting through an umbrella, with an initial 4 months contract.
This is to essentially to be extended for another 4 months but with a few weeks gap due to client funding issues.

I salary sacrificed £200 per day into my SIPP which reduced the Employers NI deducted from the day rate.

I'm thinking of increasing this amount as part of the new contract to closer to £300 per day in order to get closer to the maximum annual pension limit of £40k and minimise Employers NI etc even further.

I've been told by the umbrella company that a new contract (even an extension with/without a gap) is a legitimate reason to adjust/increase the pension salary sacrifice amount.

However the advice online doesn't seem to specifically mention this kind of change in circumstance as being allowed. More obvious things like divorce and covid impact are mentioned.

Does anyone know if what the umbrella says is definitely true and shouldn't cause any issues or extra scrutiny from HMRC?

Worst case, if I did it and it subsequently turned out to be not allowed, what would be the likely outcome including any tax penalties etc?

Thanks