Martin Lewis explains ‘good way to pay for things’ – but warns it ‘can have downsides’

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Martin Lewis offers advice on salary sacrifice on This Morning

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Mr Lewis was answering viewer calls when the last 45 seconds of his interview held a golden nugget of insight for those looking to lower their tax burden. The question regarding salary sacrifice saw him mention that while “generally it’s a good thing”, the scheme can have some downsides”.

A viewer named Mike messaged into the show to ask Mr Lewis a question regarding a new scheme at his work.

The 64-year-old enquired about “salary sacrifice” which the company he worked for is now introducing and found himself rather confused about it.

“What is it?” he asked the money expert.

Mr Lewis explained to viewers: “What it means is: you give up some of your salary, which of course is your take home pay so it’s taxed, and if it’s with the right tax benefit the company will buy something for you instead. 

“So you could put some money into your pension from pre-tax salary.”

Mr Lewis noted that these are often used for pension contributions as well as bicycle or child care schemes.

He continued: “So you actually benefit because there’s no tax on whatever you’re getting as long as it’s one of those qualifying things. 

“Talk to them about it, you should talk to the firm.

“Generally salary sacrifice is a good way for paying stuff, it’s not without its problems and I can’t go through those in 40 seconds but generally it’s a good thing.”

The ending left many viewers questioning what the possible downside to this ideal sounding scheme could be.

Thankfully, Mr Lewis has answered this question and similar ones in the past on the Money Saving Expert website, which he founded.

The question on the website notes that employees could get even more through salary sacrifice.

He further explains the scheme: “This is where you give up monthly earnings, say £1,000, and ask for your employer to contribute it to your pension instead. 

“This gains you and your employer reduced National Insurance contributions, which means you get more in your pension.”

Mr Lewis also added that some employers may even add the amount saved from the National Insurance into their pension pot.

However, this added pension and reduced tax outgoings does come at a price. 

Mr Lewis explained: “It’s worth remembering that technically this means your ‘salary’ has been reduced a touch.”

While it may not seem that a couple of pounds would make that much of a difference, this will alter one’s earnings in total.

As a result, one may find they are not eligible for certain mortgage applications, state pensions and benefits due to their reduced earnings and lowered National Insurance contributions.

This Morning airs weekdays on ITV from 10.30am.

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