Most tax efficient way of receiving a raise?

December2012

Hi, I hope I can get some help. I am approved for a raise of about 4K. I am currently already paying the higher rate of PAYE on earnings over the standard cut off.

What is the most tax efficient way that benefits me for my boss to pay me this raise? I don't necessarily need it in my account now, so I wondered if pension contributions are appropriate?

I have a prsa that I'm not contributing to presently. It's a 2 person business and I've never worked in a large or well organized with staff benefits so I'd love some guidance.

My boss will think about it too but I want to be informed of any suggestion le those with more experience can make.

3DataModem

December2012 wrote: »

Hi, I hope I can get some help. I am approved for a raise of about 4K. I am currently already paying the higher rate of PAYE on earnings over the standard cut off.

What is the most tax efficient way that benefits me for my boss to pay me this raise? I don't necessarily need it in my account now, so I wondered if pension contributions are appropriate?

I have a prsa that I'm not contributing to presently. It's a 2 person business and I've never worked in a large or well organized with staff benefits so I'd love some guidance.

My boss will think about it too but I want to be informed of any suggestion le those with more experience can make.

If you are considering a pension anyway, that can be extremely tax efficient

December2012

3DataModem wrote: »

If you are considering a pension anyway, that can be extremely tax efficient

Thanks, is it only tax efficient if I pay? Is it the same if my employer pays?

Merowig

December2012 wrote: »

Thanks, is it only tax efficient if I pay? Is it the same if my employer pays?

Option 1: You get it as a salary increase on top of your current gross - you take the money - pick a PRSA provider - claim back the tax from revenue.
Advantage: You can pick your own PRSA Provider (one without any contribution charge), you can pause any time and use the money for something else.


Option 2: As above this is added on top of your salary - but your employer picks the PRSA (or you can make suggestions ) - and contributions are done as employee contributions - "advantage" - automatic payroll deduction and you don't need to write a letter to revenue for claiming back the tax as it happens at source.


Option 3: The raise is not handled as a salary increase - but the employer is contributing to a pension scheme (and again beware of costs!) - some kind of Benefit in kind - you can contribute as well on top of that
http://www.revenue.ie/en/practitioner/ebrief/archive/2011/no-362011.html
http://www.pensionsauthority.ie/en/LifeCycle/Tax/Tax_relief_on_employer_contributions/

Advantage is that much more money can be saved per year in a tax efficient way - you save on the PRSI I believe, and you can contribute yourself more because employer contributions don't count towards the limit of what you can contribute yourself and claim back.

Unless I didn't think of something else I believe the third option is the best one.

Seanmk1

Don't forget to look at options such as bike to work and commuter tickets. If you are already commuting, it can be a decent chunk.

The pension is the best way in my opinion. Hard to beat the power of compound interest. Your retired self will thank you.

PaulM1977

If you're going to set up a pension with your employer, set up an executive pension plan. This can be done for individuals where employers want to offer a pension plan to certain employees only, instead of a group scheme.
The charges are much lower than a PRSA and you get the full 100% allocation on the contributions, with the contribution made by your employer not affecting any personal limits on your own payments which you can also make in to the plan.

An independent financial adviser will be able to tell you the best options and which provider is the best for you. They may charge you a fee for this, in order to guarantee the best deal possible for you,your employer may/may not cover this cost for you aswell.