ChatterBank4 mins ago
Higher Tax Band
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Are your pension contributions or childcare vouchers (salary sacifice) deducted from your salary before calculating your salary for the purpose of calculating what tax band you are in.
Answers
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PAYE is always calculated against gross pay, not against any figure which might be arrived at after any form of deductions. (Where an employee might be able to offset legitimate expenses, such as membership of professional associations, against tax, that is done by increasing the person's tax code and not by making any deductions from gross pay).
Chris
Chris
If you pay into a revenue approved pension scheme or salary sacrifice scheme then that is deducted from your gross pay before calculation for tax. You then deduct that week or month's free pay (the proportion of your personal allowance). You're now left with your taxable pay and that's what you pay tax on.
The first two answers do not answer the question. The point is that a properly designed salary sacrifice scheme reduces the gross pay, so the baseline from which tax and NI deductions is calculated is reduced. This is a major benefit to higher rate taxpayers.
Paying salary sacrifice into a pension scheme is certainly possible, I've no idea about childcare vouchers.
Paying salary sacrifice into a pension scheme is certainly possible, I've no idea about childcare vouchers.
Yes, I agree with Buildersmate's answer. Jazza is asking about 'salary sacrifice' schemes in which there is a pretence that some salary is forgone in return for pension contributions or childcare vouchers. For pension contributions I don't see a tax benefit but there can be worthwhile NI savings for many employees.
Oddly this NI avoidance scheme is usually worth more to basic rate taxpayers (who pay NI at a marginal rate of around 10-11% I recall) than to higher rate taxpayers who tend to be paying NI at a marginal rate of only 1% (or is it 2% now?)
Oddly this NI avoidance scheme is usually worth more to basic rate taxpayers (who pay NI at a marginal rate of around 10-11% I recall) than to higher rate taxpayers who tend to be paying NI at a marginal rate of only 1% (or is it 2% now?)
Whilst i know pensions and cars can be paid via salry sacrifice I don't know about childcare vouchers.
If it's an approved true salary sacrifice scheme then the money used to pay your child care vouchers won't ever be considered as part of your gross salary for tax and NI purposes so you should avoid higher rate tax based on what you say. That is the point of a salary sacrifice scheme. You forgo some salary and get benefits instead.
However, you may find child care vouchers are then considered to be a taxable benefit so you may get taxed (at 40%) ultimately. Check with your employer.
Also, I'm not sure how such schemes are treated when it comes to assessing entitlement to child benefit. You need to ask HMRC/DWP
If it's an approved true salary sacrifice scheme then the money used to pay your child care vouchers won't ever be considered as part of your gross salary for tax and NI purposes so you should avoid higher rate tax based on what you say. That is the point of a salary sacrifice scheme. You forgo some salary and get benefits instead.
However, you may find child care vouchers are then considered to be a taxable benefit so you may get taxed (at 40%) ultimately. Check with your employer.
Also, I'm not sure how such schemes are treated when it comes to assessing entitlement to child benefit. You need to ask HMRC/DWP
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