Salary sacrifice is a tax-efficient way for contractors and freelancers to pay into their personal pension pot and save for retirement. Continue reading to discover the different ways you could benefit from salary sacrifice.
What is salary sacrifice?
Salary sacrifice is a tax-efficient way to contribute to your personal pension pot. Put simply, you agree to sacrifice a percentage or set amount of your gross salary, which your employer will pay into your pension pot each week/month. You can receive tax relief and save up to £60,000 per tax year or up to 100% of your annual earnings – whichever is lower. You may also be able to carry forward unused allowance from previous years.
What are the benefits of salary sacrifice?
A pension salary sacrifice can offer significant benefits to contractors and freelancers; these include:
- As the employee is sacrificing part of their salary, the employee and the employer pay less National Insurance. You will also pay less income tax on your remaining salary.
- You may increase your take-home pay depending on the amount you choose to sacrifice and the tax due on your remaining salary.
- As you increase the amount you contribute to your pension each week/month, you can save more for retirement and grow your pension pot quicker.
- Basic rate taxpayers will automatically get 20% tax relief on pension contributions, and higher or additional rate taxpayers can claim additional tax relief via a self-assessment tax return.
- You’ll only receive tax relief at the highest income tax rate you pay on contributions to workplace pensions. On the other hand, contributions to pensions via salary sacrifice are not subject to income tax or National Insurance, offering a tax-efficient way to save for retirement.
It’s important to note that salary sacrifice might not be suitable for everyone because:
- You cannot sacrifice part of your salary if it means your salary will drop below the national minimum wage.
- You may receive a lower take-home pay amount depending on how much salary you sacrifice each week/month. You must consider how this might affect you.
- Your lower salary might affect the amount of money you can borrow for a loan or mortgage. Most providers will consider salary sacrifice, but checking before settling on a provider is important.
- As your salary reduces when you agree to sacrifice part of it, it could affect your entitlement to state benefits such as Maternity Pay, Paternity Pay or State Pension, which are based on National Insurance Contributions.
Benefits of Umbrella Company UK’s salary sacrifice service
Umbrella Company UK’s salary sacrifice service is incredibly flexible and a great way to save tax-efficiently for retirement. If required, you can tailor the service to suit your circumstances by changing the amount you would like to contribute each week/month to your pension. For example, if you would like to allocate a larger amount to your pension one payday and slightly less the next payday, you can. We simply ask you give us 24 hours’ notice. Alternatively, you can choose a set amount to contribute each time and watch your savings grow!
How much can you contribute to salary sacrifice?
There isn’t a set limit to how much you can contribute to your pension via salary sacrifice. However, it is important to mention that your tax-free pension allowance (£60,000 for the 2024/25 tax year) includes employer pension contributions. Therefore, make sure the higher contributions from your salary sacrifice don’t push you over this threshold; otherwise, a tax charge will apply.
How does salary sacrifice work?
If you are an employee of Umbrella Company UK, adding salary sacrifice to your payroll service is easy. To get started, you must provide us with information about your pension provider and the amount you would like to contribute. Please call 01707 669038 to get started.
Don’t worry – if you don’t have a personal pension set up but are interested in salary sacrifice, we have partnered with specialist Financial Advisors who can help you find the best personal pension for you. As an employee of Umbrella Company UK, you can benefit from a free consultation to discuss your circumstances and requirements. To schedule a consultation, please complete the short form on our website, which is available here.
If you are not an employee of Umbrella Company UK, please call our Sales Consultants on 01707 669023. They can answer any questions about salary sacrifice and our PAYE umbrella service and provide a tailored take-home pay calculation. Getting started is easy, and our expert team are on hand to help every step of the way.
Contact us today to discover the benefits of salary sacrifice
If you are interested in Umbrella Company UK’s salary sacrifice service and would like to discover the benefits of contributing to your pension via salary sacrifice, please call 01707 669023. Our expert team will provide a tailored take-home calculation and answer any questions about the service.
