When you make contributions to your pension through salary sacrifice, your payslip and P60 will look slightly different.
Payslip Changes
Here's an example of how and why your take-home pay increases
Example show monthly figures based on a £30,000 salary
| Before salary sacrifice £ | After salary sacrifice £ |
Gross Pay | 2,500 | 2,500 |
Pre Salary deductions | 0 | -125 |
Taxable Gross Pay | 2,500 | 2,375 |
PAYE (income tax) | -290.40 | -265.40 |
Employee national insurance contributions | -116.16 | -106.16 |
Employee pension contributions | -100 | Already deducted |
Take-home pay | 1,993.44 | 2,003.44 |
Paid into your pension pot | £100 + £25 tax relief + £75 from employer = £200 | £125 + £75 from employer = £200 |
Employer national insurance contributions | 312.50 | 293.75 |
Employer pension contributions | 75 | 75 |
You'll notice that the gross salary has changed because you have sacrificed £125 as a pension contribution. The amount you pay in tax and employee national insurance contributions has gone down as a result, increasing your take-home pay.
Note that your pension contribution is normally reduced by 20%, and this is refunded to you into your pension pot as a tax refund by HMRC. Once on a salary sacrifice, you'll notice that the total amount paid into your pension remains the same.
P60s
What is a P60?
A P60 is provided at the end of the tax year to those who were employed by the company on 5th April. It shows your total "taxable pay" during the tax year. It wont include things like expenses you've been reibursed, or amounts taken from your net pay.
Your P60 will show your taxable pay. So it will always reflect the reduced earnings after the salary sacrifice amount has been deducted.
If you are applying for a mortgage or loan, you might be asked for a copy of your P60. Where you can, it's best to ask if you can provide 3 x payslips instead. This is because your payslip will show your full, pre-sacrifice salary, but the P60 will only show the reduced salary. Alternatively you can ask your employer to provide a letter advising the lender of your reference salary, i.e. your pay pre-sacrifice.
Check with your lender/broker if a salary sacrifice deduction will affect your mortgage/loan application. Most lenders dont consider a pension to be a commitment as you can opt out anytime. If you find this will be an issue, as pensions are not mandatory, you could request to leave the scheme for a few months, or request to go back to your non-salary sacrifice pension deduction which wont reduce your taxable earnings.