An employer may offer its employees the option of salary sacrifice as part of their pension scheme. Through such an arrangement, an employee may agree to relinquish part of his or her salary, which the employer then pays into a pension scheme on the employee’s behalf.
Since the employee will be effectively earning a lower salary, both the employee and employer pay lower National Insurance Contributions (NICs). Better still, the employer may then also agree to pay part or all of their NIC savings into the pension, although this is strictly optional.
How to enter a salary sacrifice scheme in Voyant
To start, there is no need to make any adjustments to your client's earnings in order to account for the reduction in taxable earnings due to a salary sacrifice. Earnings should always be entered on the Employment screen as a gross amount, exclusive of any pension contributions and income taxes that may later be deducted by the software.
Pension contributions made via salary sacrifice are entered on the Pensions > Money Purchase screen.
1. Either select the appropriate pension from Dashboard > Pensions, or begin entering the details for a new pension, '+' bottom right corner > Pensions > Money Purchase
2. Personal Contribution: Enter the full amount of the salary sacrifice.
3. Select Does Salary Sacrifice apply > Yes
When selected, this setting will automatically deduct the sacrificed income (the amount you entered a moment ago in the Personal Contribution field) from your client's salary before calculating NIC, thereby reducing your client's NI contribution. For higher earners, the software will also deduct the sacrificed income before calculating a phasing out of the personal allowance.
The software will also calculate the employer's NI savings in order to potentially rebate it to the employee.
5. Employer NI Rebate: Specify the percentage of the employer's NI savings that will be rebated to the employee.
Any rebated NI savings will be paid by the employer into the pension.
6. Employee's NI Rate Code: Select the employee's NI rate code. This code will be used to calculate the employer's NI savings that may then be rebated to the employee as an additional pension contribution, based on the percentage entered above.
7. Employer contributions
Does the employer make any additional contributions to the pension apart from those made via salary sacrifice and if applicable, the NI savings rebate? Employer contributions can be scheduled independently from the salary sacrifice.
Employer Contribution: Select YES if the employer does makes additional pension contributions, aside from the salary sacrifice or the NI savings rebate. These are contributions not deducted from the client’s annual income.
Specify whether these employer contributions are Matching those made by your client or are Fixed, meaning that they are made independently of any contributions made by your client.
Where to view details of the salary sacrifice contributions
Details of these contributions can be checked on the Let’s See chart> Year View
Expand the relevant pension to see the Contribution details.
Note that this section shows the gross income, not a net figure reduced by the salary sacrifice.
The personal pension contribution scheduled via salary sacrifice will be shown as an “other” expense.
The National Insurance contribution, which should be reduced by the sacrifice made from your client’s earnings, will be shown as a tax expense.
The “Actual” contribution will show the amount that was contributed into the pension via salary sacrifice.
“Unscheduled” contributions will show a total funds deposited into the pension from sources other than your client’s income or those made through salary sacrifice. This total may include funds deposited by the employer as an NI savings rebate and could include other employer contributions made apart from the salary sacrifice and NI savings rebate. The 20% tax relief on personal contributions to non-occupational pensions will also be included in this total.
The personal tax summary will show how contributions to occupational pensions are deducted from one’s taxable income.
The adjusted NIC will be shown in the “Other Taxes” total. Again, the exact NIC can be viewed as a separate tax on the Expenses tab.
Retirement Income (Webinar 2)