Umbrella companies and pension providers

[swathingmold]

More clarification on pension contribution

I just thought would share my findings here - I have spoken to few umbrella companies and my financial adviser.

So to do the salary sacrifice - find an umbrella company which supports it. Giant PLC and Paystream both do.

Then check with them if you can choose your pension provider - Again Giant and Paystream both do for £4 a week charge, which is ok.

Then check if you can do the salary sacrifice via them - Again Giant and Paystream both do.

Now you need a financial adviser because most of the pension providers (I spoke to AEGON and Scottish Widows) are not taking direct client.

Another option is if Paystream or Giant has the group pension scheme with one of the good providers (not NEST) - Group pension is like 50 people in there, chances are umbrella company won't have it, this is usually provided by proper employers.

So assuming there is no good group pension scheme provided by umbrella and you have a financial adviser - now you can sacrifice the salary with pros and cons.

Pros -
- You save employee NI, employer NI and Tax so it's deducted from Gross, which is very good.
- You can save up to 40K for the current tax year and for previous three tax years, if you had a pension account (even if it was personal) during that time and haven't contributed to it. If you have already contributed say 10K, you can still contribute 30K for the previous tax year all by salary sacrifice.
- Your financial adviser (or may get a chartered planner) will guide you to the different funds (medium risk) and the growth rate is approx 5%
- You can take 25% as a lump sum tax free when you reach 55 years and then can buy annuity for the rest of it, I am sure there is some time for that.
- Govt is planning to change this soon (so keep an eye for the next budget, use it while it lasts)

Cons -
- Your umbrella company will need give you in the writing that you are doing salary sacrifice, which means the salary slip will only show the difference, so in a year if you earned 100K and sacrificed 60K in the pension, so now your salary is only 40K.
- You can only contribute to previous tax year only if you have contributed 40K for this year.
- Consider this - as the mortgage provider will treat your salary as 40K and not 100K. So remortgaging may be an issue.
- Once you are in the arrangement of the salary sacrifice, you can not change it for the duration of the contract or
before the financial year whichever happens first, unless there are exceptional circumstances, otherwise HMRC will ask you to pay NI on it, so that is not good.
- Exceptional circumstances are - you finish the contract, contract is extended and you don't want to continue salary sacrifice, house burned down, etc. - Financial adviser should be able to help.

I have received this advice from my financial adviser, I am yet to start all this, will post again when I have started it.

Thanks

[northernladuk]

Cons.. You are stuck with Giant and Pay stream.

Good luck.

[Paralytic]

Cons.. You are stuck with Giant and Pay stream.

Good luck.

NASA also do salary sacrifice into a pre-existing pension. Additional £5/week, unless its with a provider they regularly deal with, in which case there's no additional margin.

- Once you are in the arrangement of the salary sacrifice, you can not change it for the duration of the contract or
before the financial year whichever happens first, unless there are exceptional circumstances, otherwise HMRC will ask you to pay NI on it, so that is not good.
- Exceptional circumstances are - you finish the contract, contract is extended and you don't want to continue salary sacrifice, house burned down, etc. - Financial adviser should be able to help.

Can you elaborate on these? Certainly, on the first one, NASA have said that there is the flexibility to make changes to the contribution if circumstances change (eg, if you want to front-load payments within a tax year and then are approaching your personal there personal threshold). Perhaps that's a Giant/Paystream limitation? How could HMRC ask for NI if someone decides to increase or reduce their contribution.

In previous employment when I've contributed to the company pension via salary sacrifice, i have been able to change contribution levels (though the company restricted that to a set number of points each year in order to reduce administration)

[mattster]

Pros -
- You save employee NI, employer NI and Tax so it's deducted from Gross, which is very good.

All well and good, and I have every intention of following the same plan if I end up inside.

However the rumblings in the press about removing higher rate pension tax relief have become deafening in recent weeks, and it seems that this is a particular favoured policy of Boris, and one on which Javid was not so keen. Javid is now gone, and the government has the political capital to push this through now, with enough time to hope that the Tory faithful forget about before the next election, so I think after a few false alarms we will finally see it happen in the next budget. Losing 20% would be bad enough on its own, but my real concern is that they will stop treating this tax relief as a deduction and use some sort of tax credit mechanism instead, in a similar way to how interest tax relief is now calculated for BTL. If they do this, then they will assess your entire income before any deductions for the purposes of employer's and employee NI, and also any other perks like eligibility for child benefit. e.g. if you are on £90k and putting £40k straight into the pension, you are currently treated as having an income of £50k. If they assess on the full £90k then you'll lose a full third of that £40k before it hits the pension, once NI and tax are taken out.

Anyway, it might not happen, or it might not happen in the way I describe, but I guess the point of this slight ramble is that I wouldn't be signing up for any inside gig right now on the basis that you can make it work through pension contributions.

[contractor_coop]

Umbrella companies and pension providers

- Once you are in the arrangement of the salary sacrifice, you can not change it for the duration of the contract or
before the financial year whichever happens first, unless there are exceptional circumstances, otherwise HMRC will ask you to pay NI on it, so that is not good.
- Exceptional circumstances are - you finish the contract, contract is extended and you don't want to continue salary sacrifice, house burned down, etc. - Financial adviser should be able to help.

Can you elaborate on these? Certainly, on the first one, NASA have said that there is the flexibility to make changes to the contribution if circumstances change (eg, if you want to front-load payments within a tax year and then are approaching your personal there personal threshold). Perhaps that's a Giant/Paystream limitation? How could HMRC ask for NI if someone decides to increase or reduce their contribution.

@swathingmold comments are valid IMO. For a salary sacrifice arrangement to be deemed 'effective' by HMRC, the salary sacrifice agreement needs to a legally binding variation of the employment contract where the employee gives up their right to future cash remuneration in exchange for a non-cash benefit, such as a pension contribution.

The guidance has long been that such an agreement should persist for at least 12 months, i.e. cannot be changed unless there are lifestyle changes that significantly alters an employee’s financial circumstances. To some degree this guidance has been flexed to allow for auto enrolment rules, but it remains that if there is scope for the employee to swap between cash earnings and non-cash benefits whenever they like, HMRC are likely to conclude that any expected tax and NIC advantages under a salary sacrifice scheme won’t apply.

To be safe, I would suggest that all salary sacrifice agreements of this nature should be based on a minimum operation of 12 months, with variations restricted to significant lifestyle changes. Any chopping and changing of contributions, or contribution holidays will likely cause the whole arrangement to fail.

[eek]

@swathingmold comments are valid IMO. For a salary sacrifice arrangement to be deemed 'effective' by HMRC, the salary sacrifice agreement needs to a legally binding variation of the employment contract where the employee gives up their right to future cash remuneration in exchange for a non-cash benefit, such as a pension contribution.

The guidance has long been that such an agreement should persist for at least 12 months, i.e. cannot be changed unless there are lifestyle changes that significantly alters an employee’s financial circumstances. To some degree this guidance has been flexed to allow for auto enrolment rules, but it remains that if there is scope for the employee to swap between cash earnings and non-cash benefits whenever they like, HMRC are likely to conclude that any expected tax and NIC advantages under a salary sacrifice scheme won’t apply.

To be safe, I would suggest that all salary sacrifice agreements of this nature should be based on a minimum operation of 12 months, with variations restricted to significant lifestyle changes. Any chopping and changing of contributions, or contribution holidays will likely cause the whole arrangement to fail.

Surely its valid to say that I want £2000 (say) after tax a month and anything else should go into my pension? That provides the flexibility for amounts to vary without breaking HMRC's rules. That is exactly how I would do it in a permanent position - give me £40,000 salary and the rest goes into the pension pot.

The issue here is that the umbrella seems to be insisting that the pension payment is kept consistent and wages vary - I really don't think that is what HMRC intend...

[contractor_coop]

Surely its valid to say that I want £2000 (say) after tax a month and anything else should go into my pension? That provides the flexibility for amounts to vary without breaking HMRC's rules. That is exactly how I would do it in a permanent position - give me £40,000 salary and the rest goes into the pension pot.

The issue here is that the umbrella seems to be insisting that the pension payment is kept consistent and wages vary - I really don't think that is what HMRC intend...

Like many things tax we are working to a set of guidelines when constructing a salary sacrifice agreement. As umbrellas are performing gross to net calculations and contract income receipts will vary from week to week, month to month. It's almost impossible to settle on a fixed amount, such as £2,000. Our agreements are constructed based on an agreed percentage that will be determined in close consultation with the contractor, based on expected earnings. So depending on whether they have a take home pay objective or pension contribution target, we will work out what the % sacrifice / contribution should be each pay period to achieve their goal.

[meyerbro]

Cons.. You are stuck with Giant and Pay stream.

Good luck.

Can you explain why those are so bad?

Paystream I found awful reviews on TrustPilot...

Giant the only thing I heard is that some people had issues in the past with them not paying NI properly for you and making you have a gap, which is bad for people who want to get settle status soon...

But for me, I will have to chose between Giant or ICS...

[meyerbro]

Cons.. You are stuck with Giant and Pay stream.

Good luck.

Why they are so bad?

What about ICS?

I have to choose between those 3...

EDIT: sorry the first msg was waiting on moderation but I thought it wouldn’t go through.

[ascender]

First week of Pay Stream, all good, timesheet approved on the Monday, I got notification on the Wednesday, was paid on Thursday.

Week two of Pay Stream, timesheet was approved on the Friday night rather than following Monday, but no sign of anything at all. Pay Stream think they've got a spreadsheet from my agency to work through so I should hopefully be paid this week as I should be on that spreadsheet, but might not be.