Salary Sacrifice Pension & HMRC

[Scott.T]

I'm having to fill out an HMRC SA form (due to the new child Benefit legislation) and my payslip, P60 and/or Pension statements do not state if my Pension contributions are before or after tax.

I know I pay 3% and my employer pays 4%, but this is all lumped into one number on the above statements as 'Employer Contributions YTD'.

I believe it's 'before tax', which doesn't help me out quite aswell financially as 'after tax', on the SA calculation.

I am trying to find out from my works finance department but it s little bit like

Can anyone in the same situation advise ?

[XRS]

Scott, your pension contributions will be shown before tax as your income that is subject to tax will be reduced by your contributions. I've never seen a payslip that doesn't split ERS and EES contributions, but I've lived a sheltered life.

I always advise friends to put as much into their pensions as they can afford (subject to paying for new cars of course), many employers will match your contributions up to a certain level, but I don't know about yours of course. In the year before I retired (7 years ago) I was putting in 50%

I'm not and never have been a financial adviser so take what I say with that in mind.

[Scott.T]

The ERS and EES became combined when we switched to salary sacrifice.
It states this on the pension statement as a note to prevent questions why EES shows £0.00

[XRS]

Interesting about the salary sacrifice situation, didn't have such things when I was working. Except I sacrificed my whole salary when I took retirement.

Even so, your pension contributions will be before tax, even if your payslip doesn't show them separately.

[Banstead Stig]

If only there was a Chartered Tax Adviser on here...

The purpose of the salary sacrifice is that your 'contribution' comes out of your gross salary in return for your employer making the contributions.

So, technically you haven't made any contributions.

The tax position for you is broadly the same as you have effectively had tax and NIC relief already. The employer saves the employer NIC. Such arrangements used to get colloquially termed "NIC save".

Generally that NIC save helps employers to fund a better contribution.

[Banstead Stig]

Have a read of this article and see if it rings true to your situation.

[Scott.T]

Thanks for the reply, yes that rings true.
So I have already had a Tax saving, so I can't use my pension contribution to offset my salary when filling in the SA for the 'Child Benefit' Charge.

Probably a good job my missus is using the Child Benefit for the right reasons (the children) and we haven't spent it all. So we at least have some to cover any 'Child Benefit' Charge....I read this as additional taxation.

Why HMRC can't work this all out themselves with a simple algorithm on the PAYE system is baffling to me.

I've never received any official notification of this change in policy, only what I have read online or seen post budget's.

Therefore, I reckon :

• 80% of child benefit claimants who's Salary is over the lower threshold know nothing about it and carry on receiving. I can only assume at some point HMRC will call this in and fine people.....at huge expense to the tax payer
• 10% have opted out, so HMRC win
• 10% are 'trying' to complete a SA in the correct manner

It's made difficult for me as we get a bonus each year, which we don't get until March. So at the start of the year I have no indication whether not we will breach the Child Benefit earnings threshold.

[Banstead Stig]

It is a very overly complicated system.

When the changes came in I got a letter, which informed me that I was entitled to keep claiming. However, I would have to pay it all back in tax as I earn too much.

What a ****ing waste of time?! So there is the admin of me claiming, then the admin of me repaying it. Complete joke. Why not just write and tell me I'm not entitled to it... which is the truth of the matter.

I don't care that I'm not entitled to it really, although it does wind me up that it's solely on my income, not our household.

[Scott.T]

Originally Posted by Banstead Stig

It is a very overly complicated system.

When the changes came in I got a letter, which informed me that I was entitled to keep claiming. However, I would have to pay it all back in tax as I earn too much.

What a ****ing waste of time?! So there is the admin of me claiming, then the admin of me repaying it. Complete joke. Why not just write and tell me I'm not entitled to it... which is the truth of the matter.

I don't care that I'm not entitled to it really, although it does wind me up that it's solely on my income, not our household.

The SA now calculates I owe them just over £1000 !!!!
I did think about opting out when it was introduced, but then thought sod it why turn down free money.

I wish they just had a cut-off rather then 10% reduction per £1000 earned over the threshold.

I'm now not sure whether to get them to adjust my PAYE for 2015-2016 to reclaim it or whether to just pay it.
The last time they adjusted my PAYE when I was running Polar Performance they forgot to change it back after I ceased trading and took another 12 months worth (which I got back with a cheque this year). So in reality they have given with one hand and snatched back with another.

[Banstead Stig]

Tax coding can be a bit of a lottery.

HMRC has got mine wrong a few times and my affairs are pretty simple!

Basically, I have my salary and my P11D benefits and that's it.

Luckily, although I work in corporate tax, I know how a tax code works from doing my chartered qualification, so spot when it's wrong and get it changed.

[bigemp]

I love Hmrc.....Not!!!

Always takes approx 40 mins to get through to them every time(which i do for self assessment if a problem)

I made a tax payment which never showed up as received back in May.

After numerous phone calls/filling in forms etc finally got the money showing in my account at the tail end of september only took over 4 months,how hard is it to find a missing payment of a certain amount.

cut a long story short

The payment ended up being made to another company who pay corporate tax(which is why they couldn't find it at first/4 months).

Nothing is simple where tax is involved!!!

[RobEvo5]

Slightly off topic, but FYI Scott, and I can't remember the full ins and outs of it. But recall getting a whopping rebate back a few years ago, when I was on 40% tax bracket due to my salary, and was paying Full 40% tax on pension contributions over many years, and from memory should have been paying something like 20% according to some bean counter...

Ended up with a rebate of something like 5K at the time and could have been more but was only able to claim back no more than 3 years....

[Banstead Stig]

Originally Posted by RobEvo5

should have been paying something like 20% according to some bean counter...

Nice to use a derogatory term about someone who helped you!

I'm going to guess that what was happening was you were getting relief at 20% (possibly 22% depending how far back this was) when it should have been at 40%, rather than you were being taxed on contributions.

[RobEvo5]

Yep think that rings a bell and spot on from memory, it made a big difference and I would have probably been even better off if an accountant/finance adviser/payroll had got things right in the first place which would have gone back further than the 3 years that could be claimed back.

But aside Soz, not meant to tar all advisors with the same brush, and I'm sure you a very good in your field as I'm sure others are as well, and really don't wont to go into detail but suffice to say in general people specifically in the finance sector have historically caused me nothing but pain either personally or professionally and have only ever been looking after there own interest or looking to pacify powers that be.

[Banstead Stig]

Fair enough. You can't help but be shaped by your experiences and if you've had bad advisers then you're bound to be jaded.

I am very good at what I do, even if I do say so myself. I genuinely give a **** about my clients though, which is the absolute key in my opinion. That and having pride in everything I do.

If you have those two things in professional services (and most business actually), you won't go far wrong.

Out of interest, can you recall what the three year restriction was caused by? It could be a PAYE thing (not my area), but generally the time limits are two, four or six years for amendments, etc. in the tax world (less so with the six year windows these days).

[Scott.T]

Thankfully I don't have to deal with HMRC much but when I do they always seem to cock thing up.

Last year they invoiced me for payment of the Child Benefit Charge after I completed a SA, despite the fact I requested it be collected by PAYE.
They then proceed to collect both 2014-2015 'actual' and 2015-2016 'estimated' charge through 2016-2017 PAYE. Despite the fact I had selected on the SA to only collect monies owed and leave any estimation to the following year when 'actuals' are known.
After a letter (could not get through on the phone) they adjusted the PAYE to only collect 1 years worth of charge.

Being the good citizen that I am (I'm sure there are many people who's earning fit within the Child Benefit Charge zone that are not completing SA), I complete the SA for 2015-2016 prior to Christmas. Only to receive a codification notice today that has clearly taken the figures from 2014-2015 and ignored my SA for 2015-2016.

Do they really think a person earns exactly the same, to the penny every year ??????

My experience of HMRC and SA submission currently runs at about an 80% failure rate based on about 5 submissions over 10 years. I feel sorry for those that have to deal with this shower on a regular basis.

[alfa male]

Massive shower of poo!! In all the form filling, conversations etc i've had with them nothing ever goes smoothly.

They had me down last year for working 40hrs per week and earning £0, all because I ticked the estimate box when form filling (my final accounts hadn't been calculated then). Apparently when you tick the box it is not used in any calculation.

[Frenchie]

I,ve recently had dealings with HMRC and not impressed.Most of our investments are overseas, but some in the UK. Interest is payed into a UK account and was being taxed. COntacted HMRC and explained I lived in France and declared all income in France.They sent me a form re double taxation which I took to my local tax office,got an official stamp and returned it to HMRC.Job done I thought.Then interest contiuned to be taken on UK investments,so contacted HMRC and they now said I must pay the tax then fill in a self assesment form each April and claim it back!!! Keeps people in work I guess.

[Ferd]

It took me 3yrs to finally get HMRC off my back trying to get me to complete tax forms after I had already declared I was no longer resident in the UK and not subject to any tax. One year I was a month late and they had the gall to send me a penalty notice. Just glad I had Skype to keep the call costs down.

Sent from my Nexus 6 using Tapatalk

[Scott.T]

Originally Posted by Frenchie

Keeps people in work I guess.

You hit the nail on the head there.
The Child Benefit Charge could be calculated with a simple equation :
1. You earn more then the threshold in year 'x'
2. Your entitlement to Child Benefit drops by 10% every £1000 you earn over the threshold
3. Therefore, if you earn £2000 over the threshold then deduct the Child Benefit payments by 20%
4. When you earn £10000 over the threshold you stop receiving Child Benefit.

Simple maths......and a formula that could be applied to the PAYE system / Tax code Notification system in seconds.

[Banstead Stig]

I deal with HMRC very regularly and agree with you that the service and quality of personnel is in decline.

I do, however, have some sympathy with the people at an individual level, as resource has been cut, they are not properly trained and the levels of Inspector, etc. who are able to actually help are deployed on large assignments (such as some of the ones I work on and beyond) meaning that the average taxpayer cannot access them.

I have worked in the tax profession for twelve and a half years now and the difference in quality at HMRC is phenomenal. In terms of people, it will only get worse in my opinion unless some positive steps are taken.

The worst bit it is that it will discourage the right behaviour, i.e. like you Scott, trying to do the right thing and be compliant, and encourage even more people to take the chance of non-compliance not being picked up (which inevitably will pay off for some).

What I would say is that the digital project HMRC are undertaking should be very positive. They have a team of very strong developers (I am currently arguing with some of them over a client's R&D claim!) which once they have completed their work and have the system up and running I believe will deliver a coherent solution... it's a way off though!

I could talk for hours about this and the problems in approach to tax collection at a wider level. Probably best to avoid the subject if you happen upon me at a meet as you may find tears of boredom quickly ensue...!