Tax Needn't be Taxing...but HELP!

Canny_Geordie

Hi everyone,

I know they say tax needn't be taxing. But I am confused. I recently left the military after 22 years service.

I have a pension which is worth £8,533 per year.

I am now employed with a temporary salary, until after probation period, when my salary will increase. Currently my salary is equivalent to £34,000 (£2, 833 per month)

Now my payslip has a tax code of BR M1, which i believe is basic rate. So would I be right in assuming my salary will be taxed at the full 20%, no tax free allowance. and my tax free allowance is put against my pension.

Which one am I better off with, do I have a choice.

Thanks in advance.

jem16

Canny_Geordie wrote: »

Now my payslip has a tax code of BR M1, which i believe is basic rate. So would I be right in assuming my salary will be taxed at the full 20%, no tax free allowance. and my tax free allowance is put against my pension.

Correct. What tax code does your pension have?

Which one am I better off with, do I have a choice.

Thanks in advance.

Makes no difference in your case as your pension is over the tax-free allowance. You will pay the same in tax no matter which way round it is.

Canny_Geordie

Thanks Jimmo

Well I know what my salary will be going too after my probation period, which will be early December. My salary will increase from £34,000 to £38,000. Which as you pointed out will push me into 40% when you take into account my military pension of £8,533.

Currently my salary code is BR M1, and my pension code is 647L.

After my salary increase would it be more prudent to have my salary at 647L and take to tax hit on my pension?

jimmo wrote: »

Purely in terms of annual rates of pension and new salary you have an annual rate of earnings of £42,533.
The Income Tax personal allowance is currently £6475 leaving an annual rate of taxable earnings of £36,058.
The basic rate (20%) band is £37,000 so you are quite close to the point where the Higher Rate (40%) kicks in.
If, at the end of your probation, you salary increases by more than £1,000 you will probably have to look at it all again in far more detail.

CLAPTON

Canny_Geordie wrote: »

Thanks Jimmo

Well I know what my salary will be going too after my probation period, which will be early December. My salary will increase from £34,000 to £38,000. Which as you pointed out will push me into 40% when you take into account my military pension of £8,533.

Currently my salary code is BR M1, and my pension code is 647L.

After my salary increase would it be more prudent to have my salary at 647L and take to tax hit on my pension?

do you make pension payments in your new job; if so they are made out of your gross income and so reduce your taxable income and so you may not pay 40% tax

Canny_Geordie

At the moment I do not pay pension payments in my new job. Payments are not payable until 6 months inot the job. So this would not apply at this time.

CLAPTON wrote: »

do you make pension payments in your new job; if so they are made out of your gross income and so reduce your taxable income and so you may not pay 40% tax

jem16

Canny_Geordie wrote: »

Currently my salary code is BR M1, and my pension code is 647L.

After my salary increase would it be more prudent to have my salary at 647L and take to tax hit on my pension?

It depends on the way they code out the need for 40% tax on around £3k of your income. If they insist on using the D0 code (all at 40%) then it would be better to be on the smaller income.

However it's possible to adjust your tax code to take into account the extra tax needed - in this case it may not matter.

At the moment I do not pay pension payments in my new job. Payments are not payable until 6 months inot the job. So this would not apply at this time.

When would you join and would you pay £3k or more into the pension fund - that would keep you in basic rate tax.