Tax question I should know the answer to.

[rfisher]

As per title.

Does a NI deduction come out of gross or taxed income.

So if you get £1000 pay and NI is £100 do you pay PAYE income tax on £1000 or £900?

Ta.

[DanL]

Everything comes out of gross, so far as I'm aware...

[Eric Mc]

rfisher said:

As per title.

Does a NI deduction come out of gross or taxed income.

So if you get £1000 pay and NI is £100 do you pay PAYE income tax on £1000 or £900?

Ta.

NI is calculated on the Gross Amount of your salary - but not on the full value of the gross.
Before the NI is calculated, the Lower Earnings Threshold is deducted. The Lower Earnings Threshold is £110 per week or £5,720 per annum or £476 per month)

So, on a monthly salary of £1,000, you would be charged Class 1 NI on £1,.000 less £477 x 11% = £57.64

Note that your employer will pay an additional Employer's NI contribution of £67.04 so it actually costs him £1,067.04 to employ you each month.

[youngsyr]

While we're on the subject, do employee pension contributions that qualify for income tax relief also get relief from NI?

I believe they don't, but I'm not sure.

[beano500]

youngsyr said:

While we're on the subject, do employee pension contributions that qualify for income tax relief also get relief from NI?

I believe they don't, but I'm not sure.

No - but there are ways and means. If an employee has (elects) a lower salary in exchange for a contribution made by the employer, it can in effect.

Have I explained that at all/well?

[Eric Mc]

beano500 said:

youngsyr said:

While we're on the subject, do employee pension contributions that qualify for income tax relief also get relief from NI?

I believe they don't, but I'm not sure.

No - but there are ways and means. If an employee has (elects) a lower salary in exchange for a contribution made by the employer, it can in effect.

Have I explained that at all/well?

"Salary Sacrifice".

Not a great fan of such schemes as it can work against you when looking for new employment or a mortgage.

The main reason they are popular with employers is that they reduce the employers "Employer's NI" bill.

And yes, pension contributions have no effect on reducing Employee NI calculations.

[youngsyr]

Eric Mc said:

beano500 said:

youngsyr said:

While we're on the subject, do employee pension contributions that qualify for income tax relief also get relief from NI?

I believe they don't, but I'm not sure.

No - but there are ways and means. If an employee has (elects) a lower salary in exchange for a contribution made by the employer, it can in effect.

Have I explained that at all/well?

"Salary Sacrifice".

Not a great fan of such schemes as it can work against you when looking for new employment or a mortgage.

The main reason they are popular with employers is that they reduce the employers "Employer's NI" bill.

And yes, pension contributions have no effect on reducing Employee NI calculations.

Ah right, so employer doesn't pay Employer NIC on Employer pension contributions?

So, with a bit of careful planning, the employer can pay a lower salary and higher pension contribution without any additional staff cost - the Employer just pays the savings on the lower Employer NIC on the lower salary into the pension?

I understand where you're coming from with mortgage applications/salary negotiations as well though, Eric.

[Eric Mc]

I left a job partly because they were moving to a salary sacrifice scheme to cover "Profit Related Pay" - which was against the entire spirit of the Profit Ralted Pay scheme as set out by the government.

Beacuse of such practices, the government later abolished tax free status on Profit Rated Pay.

Other Salary Sacrifice schemes have come and gone over the years, mainly because they are seen to be abused by the employers.