Bonus Paid into Pension Question
Discussion
I opted to pay a chunk of my bonus into my pension this year - this has been done as requested, but shows as an employer, rather than employee contribution on my P60.
I'm not sure this is correct - as it has effectively been taken from my salary in the same way normal contributions would be?
The downside to this as with it not showing as an employee contribution I cannot claim the additional tax relief on it?
Anyone got an experience?
I'm not sure this is correct - as it has effectively been taken from my salary in the same way normal contributions would be?
The downside to this as with it not showing as an employee contribution I cannot claim the additional tax relief on it?
Anyone got an experience?
It sounds like you have sacrificed a portion of your bonus and you employer will be paying it into your pension shortly.
Therefore, you won't have paid any tax on this (not on the bit you have sacrificed) so there is no additional tax relief fo you to claim.
You can only benefit from tax relief when tax has been suffered...
The only exception to this is if you earn peanuts as they let everyone (technically those with pension accounts already open) put £2,880 into a SIPP upon which they add £720 of 'tax relief' even in circumstances when you have paid no income tax to make the contribution worth £3,600.
Therefore, you won't have paid any tax on this (not on the bit you have sacrificed) so there is no additional tax relief fo you to claim.
You can only benefit from tax relief when tax has been suffered...
The only exception to this is if you earn peanuts as they let everyone (technically those with pension accounts already open) put £2,880 into a SIPP upon which they add £720 of 'tax relief' even in circumstances when you have paid no income tax to make the contribution worth £3,600.
Edited by Mogul on Wednesday 31st March 15:11
Thanks, I asked the accountant the same question and got a very long winded answer saying I could be better off with it as an employee contribution, but I don't see how I can be.
Surely even in the best case where I claim 20% tax back in the pension and another 20% back via self assessment I am still down by at least the 2% NI due on it when initially paid to me.
They also mentioned the child benefit charge, but again surely there can be no benefit here, as now the bonus isn't included in the salary used to calculate this anyway?!
All very confusing...
Surely even in the best case where I claim 20% tax back in the pension and another 20% back via self assessment I am still down by at least the 2% NI due on it when initially paid to me.
They also mentioned the child benefit charge, but again surely there can be no benefit here, as now the bonus isn't included in the salary used to calculate this anyway?!
All very confusing...
I think the way it works is thus:
If it had been paid and the you subsequently made the contribution the you would have suffered tax and NI on it and would have recovered tax through self assessment. But not the NI.
But as it was a deduction on your earnings as a salary sacrifice, you are treated as not having received it. Hence no tax or NI paid.
Likewise for child benefit, i think the point here is that your earnings are the earnings before bonus if under salary sacrifice, but will include the bonus if not (i think)
If it had been paid and the you subsequently made the contribution the you would have suffered tax and NI on it and would have recovered tax through self assessment. But not the NI.
But as it was a deduction on your earnings as a salary sacrifice, you are treated as not having received it. Hence no tax or NI paid.
Likewise for child benefit, i think the point here is that your earnings are the earnings before bonus if under salary sacrifice, but will include the bonus if not (i think)
chris.tarry85 said:
Thanks, I asked the accountant the same question and got a very long winded answer saying I could be better off with it as an employee contribution, but I don't see how I can be.
Surely even in the best case where I claim 20% tax back in the pension and another 20% back via self assessment I am still down by at least the 2% NI due on it when initially paid to me.
They also mentioned the child benefit charge, but again surely there can be no benefit here, as now the bonus isn't included in the salary used to calculate this anyway?!
All very confusing...
Having it done by an employer contributuion through salary sacrifice is far better and easier for you, so I can't think why an acountant is saying otherwise. I had exactly the same scenario for the last 3 years I was working full time, they paid an extra 2 grand a month into my pension and it also had the added benefits of taking me below both the 40% higher rate threshold and the child benefit threshold and best of all no more Pi**ing about with self assement returnsSurely even in the best case where I claim 20% tax back in the pension and another 20% back via self assessment I am still down by at least the 2% NI due on it when initially paid to me.
They also mentioned the child benefit charge, but again surely there can be no benefit here, as now the bonus isn't included in the salary used to calculate this anyway?!
All very confusing...
chris.tarry85 said:
Thanks, I asked the accountant the same question and got a very long winded answer saying I could be better off with it as an employee contribution, but I don't see how I can be.
Surely even in the best case where I claim 20% tax back in the pension and another 20% back via self assessment I am still down by at least the 2% NI due on it when initially paid to me.
They also mentioned the child benefit charge, but again surely there can be no benefit here, as now the bonus isn't included in the salary used to calculate this anyway?!
All very confusing...
Are you a director of your own limited company?Surely even in the best case where I claim 20% tax back in the pension and another 20% back via self assessment I am still down by at least the 2% NI due on it when initially paid to me.
They also mentioned the child benefit charge, but again surely there can be no benefit here, as now the bonus isn't included in the salary used to calculate this anyway?!
All very confusing...
If you are then the primary benefit is that the company doesn't pay 13.8% NIC and the employee doesn't pay 2% (HRT payer) or 12% below HRT payer).
If you are simply an employee of a larger company then you will benefit from saving NIC at 2%.
As a HRT payer there is a better way to make lump sum contributions in to your pension via Salary Sacrifice. The basic premise is to pay as much as you can in to pension via SS (staying above NMW) in as few months as possible AND to NOT sacrifice any additional monies when you are paid a bonus.
The reason this is more efficient is that tax is a holistic whole of year calculation, whilst NIC are based on the payment being made. By doing this you aim to contribute so as to gain 40% tax saving (by not actually receiving the money), 2% NIC savings on some of the money, and 12% NIC savings on the remaining amount of money.
A very, very simple example, and all numbers are approximate. NMW equates to approx. £1500pm.
Lets assume you earn £75k. And lets assume your standard contribution is 5%. That leaves us with £71.25k, which equates to £5900pm (approx).
If we assume you were to sacrifice an additional amount so as to get you down to the HRT threshold (usually £50k) overall. From your approx £5900pm gross you would sacrifice an additional £4400 for 8 months, and not in a bonus month.
By doing this roughly £2k pm would benefit from 12% NIC savings (costing you only £960, and the remaining £2400 would cost you £1392. Total cost of contributing an additional £4400 of £2352. Total additional contributing of £35200 costs £18816.
If you just contributed the same amount equally over the year and or when you receive a bonus the vast majority, if not all (depending on the size of the bonus) would simply benefit from the standard 40% tax savings and 2% NIC savings so, the total cost of contributing £35200 via the standard method would be £20416, costing you an additional £1600 (£20416 - £18616).
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