Personal pension and salary sacrifice
Discussion
Asked this elsewhere but now have a better idea of what I mean.
This is for a client and is not my area at all so.
Employee is due a £10K bonus which will incur £4K tax. Employee has no pension as yet and there is no company scheme.
Question. If we defer payment of the bonus, or part at least as there is nothing in writing or contractual at this point, can the employee set up a personal pension and pay a portion of the bonus into it as a salary sacrifice, with a view to making regular payments in the same way thereafter?
Or does it have to be a company scheme? Very small business with 5 employees only and petrified of having to deal with the new provisions so delaying as long as possible.
This is for a client and is not my area at all so.
Employee is due a £10K bonus which will incur £4K tax. Employee has no pension as yet and there is no company scheme.
Question. If we defer payment of the bonus, or part at least as there is nothing in writing or contractual at this point, can the employee set up a personal pension and pay a portion of the bonus into it as a salary sacrifice, with a view to making regular payments in the same way thereafter?
Or does it have to be a company scheme? Very small business with 5 employees only and petrified of having to deal with the new provisions so delaying as long as possible.
I'm not an expert in this but seeing as no-one else has replied yet I'll chip in.
As far as I am aware as long as the money is paid into any pension fund in the same tax year as the bonus is received the tax can be reclaimed from HMRC. (However the recipient would receive £6k net and have to pay in £10k and wait for the £4k refund so there is a cashflow issue).
However, if the employer pays the money directly into the pension fund tax does not have to be deducted at all. Furthermore the employer does not have to pay NI on it so saves 13.8% of the amount too.
Yes, you could wait until the pension is set up to pay the amount - unless the employee is a director in which case there "may" be a provision about tax being calculated when the bonus is accrued in accounts.
I'm sure someone else can speak with more authority on this!
As far as I am aware as long as the money is paid into any pension fund in the same tax year as the bonus is received the tax can be reclaimed from HMRC. (However the recipient would receive £6k net and have to pay in £10k and wait for the £4k refund so there is a cashflow issue).
However, if the employer pays the money directly into the pension fund tax does not have to be deducted at all. Furthermore the employer does not have to pay NI on it so saves 13.8% of the amount too.
Yes, you could wait until the pension is set up to pay the amount - unless the employee is a director in which case there "may" be a provision about tax being calculated when the bonus is accrued in accounts.
I'm sure someone else can speak with more authority on this!
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