Tax - salary sacrifice - adjusted net income - PA

[thebullettrain]

Would anyone know if entering into a low emission vehicle salary sacrifice would mean that “sacrifice”‘can be used to reduce the adjusted net income? This is a specific place question where one could lose the personal allowance as the income is between 100 and 125K.

[GR_TVR]

I looked into this earlier in the year and was told that yes, the sacrifice would mean you are essentially reducing your taxable income, so can be used to help mitigate against the horrible £100-125k bracket.

Whilst not 100% on this I'm pretty confident that's right...

[Eric Mc]

That's one of the advantages of "salary sacrifice" schemes.
The important thing is that the "sacrifice" has to be in respect of a benefit to the employee that would not normally be taxed under the PAYE Benefit in Kind scheme.

The downside MAY be that your headline Gross Salary as shown on your annual P60 will be lower than the true value of your salary, which could be a disadvantage if seeking to borrow or negotiating a salary with a potential new employer.

Salary sacrifice schemes are very common now so the latter points are less of an issue than they once were.

[thebullettrain]

Eric Mc said:

That's one of the advantages of "salary sacrifice" schemes.
The important thing is that the "sacrifice" has to be in respect of a benefit to the employee that would not normally be taxed under the PAYE Benefit in Kind scheme.

The downside MAY be that your headline Gross Salary as shown on your annual P60 will be lower than the true value of your salary, which could be a disadvantage if seeking to borrow or negotiating a salary with a potential new employer.

Salary sacrifice schemes are very common now so the latter points are less of an issue than they once were.

Thanks all

EricMC - is your point about not falling into the benefit in kind bucket so that you then don’t get that income back into the charge to tax?

I think pension contributions are definitely out of that and the low emission car angle means zero percent BIK this year. So that helps and to the extent it reduces the net income it’s very helpful in not losing the personal allowance.

[Welshbeef]

Can salary sacrifice impact state pension in any way?

[Pheo]

Welshbeef said:

Can salary sacrifice impact state pension in any way?

I believe it can on the very low income end of the spectrum, if you took yourself below a level where you were making enough NI contributions to have it count as one of your NI years for the purposes of getting the state pension...

[Eric Mc]

thebullettrain said:

Thanks all

EricMC - is your point about not falling into the benefit in kind bucket so that you then don’t get that income back into the charge to tax?

I think pension contributions are definitely out of that and the low emission car angle means zero percent BIK this year. So that helps and to the extent it reduces the net income it’s very helpful in not losing the personal allowance.

A salary sacrifice is when an employer provides some sort of "benefit" to the employee - but deducts the value of the benefit from the salary before tax and NI is calculated. However, many benefits themselves are subject to income tax through the PAYE Benefit in Kind tax rules - except for those benefits which the government wants to encourage for political reasons - such as eco-friendly cars, bicycles and some pensions.

[chinnyman]

Does anyone know if your personal allowance comes off your total salary for adjusted net salary?

I get PAYE salary and Dividends buy want to stay below £100k for childcare reasons.

[Eric Mc]

Your personal allowances come off your total income. It doesn’t matter whether the income is salary, dividends or anything else.

[2 GKC]

chinnyman said:

Does anyone know if your personal allowance comes off your total salary for adjusted net salary?

I get PAYE salary and Dividends buy want to stay below £100k for childcare reasons.

You really do get hammered for earning more than £100k. 60% tax too until the PA is gone.

[chinnyman]

Eric Mc said:

Your personal allowances come off your total income. It doesn’t matter whether the income is salary, dividends or anything else.

On .gov.uk. for childcare they look at the salary pre personal allowance. So I need to make sure salary and Dividends are £99,999.