[Need advice] Tax avoid for salaryman & my financial status

starkiwi26 · 9 November 2017 at 12:31AM

08/03/2018 update:
Following my above questions and intention, I successfully made one-off-payment to my pension by salary sacrifice on February salary. I got a few hundreds pound of refund on income tax. However, when I want to make second one-off-payment to my pension by salary sacrifice on March salary, my request was ignored. Apparently my HR is not happy to help me the second one-off-payment to my pension.

While I understand I create unnecessary trouble to payroll, but I have no choice to do it two times because £6k is more than 1 month salary, this is the reason why I have to make 2x one-off payment (on February & March respectively).

I am looking at alternative solutions below.
a) open a new personal pension scheme and invest.
b) call my current pension (Legal & General) and make one-off payment myself.

Based on helpful advice provided by fellow members, if I understand correctly, both solutions above will require me to do paperwork:
If you pay 40% Income Tax
Claim tax relief on the extra 20% in your Self Assessment tax return if you pay Income Tax at the 40% rate. If you don!!!8217;t fill in a tax return, call or write to HMRC.
(Source: https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief)

My questions:
a) Because my HR payroll refused to help make one-off-payment to pension, my taxable income is now 48k. To bring down to £45k (20% lower tax band), how much should I pay to personal pension account / one-off-payment to my current Legal & General pension (not by salary sacrifice)? Should I pay in £2.5k or £3k?
If I pay in £3k, I will get 20% 'Relief at source', this will make it £3.6k.
If I pay in £2.5k, I will get 20% 'Relief at source', this will make it £3k.

b) After I call or write to HMRC, how do I get refund? paid to my personal pension? or paid to me by cheque/BACS?

c) Is there benefit to open a personal pension account and make the contribution? (compared to call my current pension, Legal and General, to make one off payment)

d) Since this is one-off tax relief claim for 2017/2018, because I believe this will not happen again in 2018/2019 because my company is having crisis and freeze our salary & bonus, therefore my taxable income will be <£45k. For this reason, I prefer not to do "Self Assessment tax return". What should I write to HMRC? eg. send the evidence that I contributed extra money to personal pension account / one-off-payment to my current Legal & General pension (not by salary sacrifice)?

e) Is there a deadline date I must call or write to HMRC?

f) As above is for tax relief, would I able to get refund for National Insurance also?

29/01/2018 update:
Thanks all members for the replies.
I adjusted a little my calculation (to include company benefit which is taxable), the final figure I should pay to pension to bring down my taxable income is £6000. This is higher than I calculated previously. This mean I have to pay 2x one-off payment of £3000 to my pension to bring down my taxable income to £45k.
But, one-off pension payment of £3000 is more than my monthly salary of £2575.

Considering my monthly salary £2575 is with normal income tax £525 deduction. So, if I made £3000 one-off payment to pension, this shall reduce my income tax also, so I assume I still can afford to make £3000 one-off payment to pension?
Question 1: Do my assumption make sense?

I logged in to Government Portal, there is a "Estimated taxable income" which show £50k+. There is a "Update" link which allow me to update my estimated taxable income.
Question 2: Shall I update my taxable income to £45k so that I can less/no income tax to achieve assumption I mentioned above?

I just called my HR, their first response is to make the payment myself to my company pension. However, I told them I would like to make this one-off-payment by salary sacrifice. They requested me to raise the request by email. I just emailed them, let's see how they respond.

NEW POST on January 2018:

Dear all MSE fellow members,

As the news last November, the wealthy avoided billions of tax paying, this urge me to review my tax paying, and I should avoid the tax wherever possible.
Now is about 2 months until 2017/2018 tax year closing, so I was calculating my income in 2017/2018 tax year, so that I can channel more money to pension and avoid tax.

Up to January 2018
My 2017/2018 income: about £46k
The tax I had paid by employer deduction: about £8200

My target is to avoid 40% higher tax band
From my calculation, I need to make "one-off pension payment" of £5000 to pension, this will bring down my 2017/2018 income to about £45k, which make me to pay only 20% lower tax band.
At £48k, at 20% lower tax band, for 2017/2018 tax year, the tax I should be paying is £6700. This is less than what I already paid (employer deduction) £8200.

My questions:
a) Would the government refund the tax I overpaid? it is about £1500.
b) How the government refund me? my employer pay to my next month pay check?
c) Do I need to do any application or filing to get this £1500 refund?
d) How difficult to claim this £1500 refund? Do it worth the hassle to do all these to claim back £1500 refund? Or shall I just forget it, just pay 40% higher tax band for £5000, keep myself peace of mind.
e) Could I split "£5000 one-off pension payment" to 2 payments? £2500 on February, and another £2500 on March? because my take home salary is only £2600 only.

It is all my hard earned money, and I did a lot calculation to come up this £5000 figure for "one-off pension payment". Feel unfair that the wealthy has accountant to help them avoid the tax paying, the salaryman like us have to work out this complicated calculation to avoid higher tax band. Hope my post on this thread can inspire other to do the same, avoid paying our hard earned money for unnecessary tax to government. :money: money saving tips

Many thanks!:beer::beer::beer:

ORIGINAL POST on November 2017:

Dear all,

As the recent news on how the wealthy avoid billions of tax paying :eek:, I decided to review my financial status and how to avoid tax wherever possible too, though my earning is only penny compared to those wealthy people.

Assumed my salary + annual bonus is £50k.

This means
£11500 - no tax
£11500-£45k (£33.5k) - will be taxed at basic tax rate (20%), this is £6.7k/year
£45k-£50k (£5k) - will be taxed at the higher tax rate (40%), this is £2k/year :mad::mad::mad:

Seeing how the wealthy avoid the tax by tax heaven oversea investment, I am unhappy to let the government to take away 40% (at the higher tax rate) of my hard earn money. I earn these money with my blood sweat and tears. To avoid this higher tax rate (40%), I am planning to increase my salary sacrifice (for pension) to £420 monthly (£5040/year).:T:T:T
My question 1: By doing this, Will I avoid being taxed at the higher tax rate (40%)?

Continue from above, assumed my monthly salary is £4k, annual bonus is £2k (this is performance bonus, depend on company performance and personal performance, can vary from £2k to £4k).
I am on PAYE (Pay As You Earn). The government take away the tax monthly, on the month where my bonus is paid, the government will take away more tax that month.:(
My question 2: Will the government do adjustment at the end of financial year (on March?) so that I will not be overtaxed?:A

I am 34 years old, single male.
unfortunately, I am still looking for a girl friend... Being single, my monthly grocery (i cook myself) and food expenses are very low, <£100.
I have allocated £3k set aside as emergency fund in Tesco saving account (3% interest), have a £500 monthly regular saving account (5% interest), and plan to max out the ISA budget £20k this year (in fund investment).
Any remaining salary from above, will be used for my holiday, travel and party :beer::beer::beer::beer:
My question 3: Any advices on my financial status are very welcome too.

redpete · 9 November 2017 at 9:00AM

Answer 1: Yes, unless the bonus takes you back over the threshold.

Answer 2: The adjustment will happen throughout the year, you wont have to wait until the end of the year.

starkiwi26 · 26 January 2018 at 2:43PM

Dear all MSE fellow members,

As the news last November, the wealthy avoided billions of tax paying, this urge me to review my tax paying, and I should avoid the tax wherever possible.
Now is about 2 months until 2017/2018 tax year closing, so I was calculating my income in 2017/2018 tax year, so that I can channel more money to pension and avoid tax.

Up to January 2018
My 2017/2018 income: about £46k
The tax I had paid by employer deduction: about £8200

My target is to avoid 40% higher tax band
From my calculation, I need to make "one-off pension payment" of £5000 to pension, this will bring down my 2017/2018 income to about £45k, which make me to pay only 20% lower tax band.
At £48k, at 20% lower tax band, for 2017/2018 tax year, the tax I should be paying is £6700. This is less than what I already paid (employer deduction) £8200.

My questions:
a) Would the government refund the tax I overpaid? it is about £1500.
b) How the government refund me? my employer pay to my next month pay check?
c) Do I need to do any application or filing to get this £1500 refund?
d) How difficult to claim this £1500 refund? Do it worth the hassle to do all these to claim back £1500 refund? Or shall I just forget it, just pay 40% higher tax band for £5000, keep myself peace of mind.
e) Could I split "£5000 one-off pension payment" to 2 payments? £2500 on February, and another £2500 on March? because my take home salary is only £2600 only.

It is all my hard earned money, and I did a lot calculation to come up this £5000 figure for "one-off pension payment". Feel unfair that the wealthy has accountant to help them avoid the tax paying, the salaryman like us have to work out this complicated calculation to avoid higher tax band. Hope my post on this thread can inspire other to do the same, avoid paying our hard earned money for unnecessary tax to government. :money: money saving tips

Many thanks!:beer::beer::beer:

redpete · 26 January 2018 at 5:03PM

starkiwi26 wrote: »

My questions:
a) Would the government refund the tax I overpaid? it is about £1500.

The pension company will claim the 'standard' 20%, you claim the other 20% (due to you being a 40% tax payer.

b) How the government refund me? my employer pay to my next month pay check?

By transfer into your nominated bank account, or a cheque. Or, if you are paying direct from your salary into a company scheme, the adjustment to your tax against salary will be automatic.

c) Do I need to do any application or filing to get this £1500 refund?

You either write to them just to claim for the lump sum pension payment or you fill in and submit a full self assessment tax return.

d) How difficult to claim this £1500 refund? Do it worth the hassle to do all these to claim back £1500 refund? Or shall I just forget it, just pay 40% higher tax band for £5000, keep myself peace of mind.

how much is your time worth to you? If an hour or so doing something else is worth more than £1500 then don't bother claiming the tax back.

e) Could I split "£5000 one-off pension payment" to 2 payments? £2500 on February, and another £2500 on March? because my take home salary is only £2600 only.

Yes

It is all my hard earned money, and I did a lot calculation to come up this £5000 figure for "one-off pension payment". Feel unfair that the wealthy has accountant to help them avoid the tax paying, the salaryman like us have to work out this complicated calculation to avoid higher tax band. Hope my post on this thread can inspire other to do the same, avoid paying our hard earned money for unnecessary tax to government.

I'm happy to pay taxes towards the services that I and the rest of society get from government funds. You have the choice to move somewhere else where you pay for more of these for yourself but pay less in taxes.

starkiwi26 · 26 January 2018 at 8:41PM

redpete wrote: »

The pension company will claim the 'standard' 20%, you claim the other 20% (due to you being a 40% tax payer.

Sorry, I didn't understand this.
My pension is paid with salary sacrifice (deduct from my salary monthly).
I will make "one off payment" £5,000 to my pension.
Because of this £5,000 additional payment to my pension, this reduce my taxable income for 2017/2018 tax year to only £45k. Therefore, this will make me overpaid £1,500 tax to the government.
I expect to get tax refund of £1,500 from the government. I didn't understand, how the pension company claim the "standard" 20%?

By transfer into your nominated bank account, or a cheque. Or, if you are paying direct from your salary into a company scheme, the adjustment to your tax against salary will be automatic.

My company pay to my bank account monthly. by paying £5,000 additional payment to my pension, this mean I will not get any salary on Feb and March. I will live on my saving on these 2 months.

YesI'm happy to pay taxes towards the services that I and the rest of society get from government funds. You have the choice to move somewhere else where you pay for more of these for yourself but pay less in taxes.

I have been paying taxes for years. This is the first time I do this after annoyed by the news last November that the wealthy avoided billions of tax paying. My tax cut is legal and peanut compared to those wealthy. Also, I have to live with my saving for 2 months for doing this also.

molerat · 26 January 2018 at 9:50PM

If the company pay the £5000 to the pension through payroll there will be no tax to reclaim, the PAYE system will account for it and you may actually get a pay packet due to tax being refunded.

starkiwi26 · 26 January 2018 at 10:06PM

molerat wrote: »

If the company pay the £5000 to the pension through payroll there will be no tax to reclaim, the PAYE system will account for it and you may actually get a pay packet due to tax being refunded.

sorry for being noob, what is pay packet?

molerat · 26 January 2018 at 10:08PM

The pay you get from your employer.

redpete · 27 January 2018 at 12:43AM

starkiwi26 wrote: »

Sorry, I didn't understand this.
My pension is paid with salary sacrifice (deduct from my salary monthly).
I will make "one off payment" £5,000 to my pension.
Because of this £5,000 additional payment to my pension, this reduce my taxable income for 2017/2018 tax year to only £45k. Therefore, this will make me overpaid £1,500 tax to the government.

I initially thought you were making the one-off pension contribution to a separate pension to that provided by your employer. When I realised you might be making the additional contribution into your company pension I edited part of my response but not the first section.

dori2o · 28 January 2018 at 3:22AM

a) Would the government refund the tax I overpaid? it is about £1500.

If you have overpaid tax it will be refunded by HMRC

b) How the government refund me? my employer pay to my next month pay check?

If you make the claim for increased pension contributions BEFORE April 2017 HMRC will update your tax code and the relief will be given by your employer.

If you choose to do this then you must make sure you actually pay the contribution or you will be getting rerlief you bare not due.

If you notify HMRC AFTER 6 April 2017 they will automatically review your records.

No records can be reviewed until after 20 April. This is because HMRC have to give employers 2 weeks to make any adjustments to their Month 12 submissions.

HMRC will send you a cheque. They can no longer send cheque payments to your bank for PAYE refunds unless you complete self assessment forms, in which case a BACS transfer can be made for the refund.

c) Do I need to do any application or filing to get this £1500 refund?

You will need to tell HMRC that you have made an increased pension contribution.

However, it all depends on how your contribution is made.

If you are paying this contribution seperately to your pension provider and not by way of a deduction from your salary, then you will need to claim the additional relief from HMRC.

If the contribution will be paid directly from your salary, i.e. if you normally get £2600 net salary a month, but will only get £100 in February and March because you're making a £2500 increased payment in those months, then it is possible that any relief due will be dealt with by your employers payroll department as with most company pension schemes your pension contribution is usually taken before tax is deducted. This means that you will not have paid 40% tax on the money paid to the pension company and therefore will have no further relief to claim back.

How will you be making the contribution?

d) How difficult to claim this £1500 refund? Do it worth the hassle to do all these to claim back £1500 refund? Or shall I just forget it, just pay 40% higher tax band for £5000, keep myself peace of mind.

If you don't already do self assessment, and you need to claim additional relief, then you can claim the refund in 3 ways.

1) Telephone. Call after 20 April and give the details to an adviser who will review your record assuming there are no missing details.

2) Post. Write to HMRC providing details of the contribution you have made. This will usually be dealt with in 4 to 6 weeks.

3) Online. Log into your personal tax account and update your details by submitting an iForm to notify of changes to your income/details.

This will be reviewed by an adviser after 20 April and any refund due will be issued to you by cheque.

Where possible you should try and deal with your tax affairs by using your personal tax account.

It's quicker, easier, and available 24/7.

e) Could I split "£5000 one-off pension payment" to 2 payments? £2500 on February, and another £2500 on March? because my take home salary is only £2600 only.

If you pay your contributions through your salary then it is up to your employer as to whether there is a limit as to how much of a contribution they can take from your salary. This should not prevent you making the payment directly to the pension company.

dori2o · 28 January 2018 at 3:33AM

starkiwi26 wrote: »

I have been paying taxes for years. This is the first time I do this after annoyed by the news last November that the wealthy avoided billions of tax paying. My tax cut is legal and peanut compared to those wealthy. Also, I have to live with my saving for 2 months for doing this also.

I have no idea why you are trying to justify your reasons for paying into your pension to reduce your taxable income.

However, the justification you are using for doing this is rather hypocritical, given that whilst the news in November was shocking, as it stands at the moment, none of the people concerned have done anything wrong.

They have all used what are currently LAWFUL tax avoidance methods/schemes to reduce their taxable income.

This is exactly what you are doing.

It may not be on the same scale as some people, but the result is the same.

Is it morally right. Maybe not.

Is it the fault of the people doing this? No.

The Government, namely the Treasury, sets the rules regarding tax, and has the ability to close any loopholes that might exist, and to strengthen the position of HMRC when it comes to preventing the use of aggressive tax avoidance schemes.

Are you wrong for doing what you do? No.

You are only making use of the rules available to you, just like those who were names in the Panama Papers have done via their accountants.

[Need advice] Tax avoid for salaryman & my financial status

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