AVCs and Tax . . . . help, v confused.
The_Salad
Posts: 117
Forumite
Let says I earn £44,200 per annum so £200 in to the 40% tax bracket.
I pay in to a Company organised AVC scheme £500 per month which I'm told is taken from my salary before tax and NI contributions. But do I get 40% tax relief on the full £6,000 saved each year or 40% on £200 and 20% on £5,800 ?? How does it work?
Let say I also get an annual bonus of £10,000 - how does that affect te equation?
Hoping someone can help.
Thanks.
I pay in to a Company organised AVC scheme £500 per month which I'm told is taken from my salary before tax and NI contributions. But do I get 40% tax relief on the full £6,000 saved each year or 40% on £200 and 20% on £5,800 ?? How does it work?
Let say I also get an annual bonus of £10,000 - how does that affect te equation?
Hoping someone can help.
Thanks.
0
Comments
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You only get HR relief on the HR actually paid ie on £200.
If you get a £10,000 bonus and pay HR on that then you'd get relief on full £6000 AVC.
Obviously the bonus has to be paid in same tax year.0 -
Thanks.
So will my £10k bonus be taxed in full at the higher rate (HR?). Or should I receive a 20% rebate given that I've only had 20% tax relief on AVC contributions of £5,800?
My company pay tax and NI at source so its all done for me.0 -
Let says I earn £44,200 per annum so £200 in to the 40% tax bracket.I'm told is taken from my salary before tax and NI contributions
This means you not only get income tax relief, but probably also get relief on National Insurance Contributions (NICS). This is important, as on income up to the higher rate tax threshold you pay 11% NICS (assuming there isn't a contracted-out pension scheme) whereas on income over higher rate tax threshold you pay 1% NICS. Your employer also pays 12.8% employer's National Insurance on all earnings.
You should examine exactly how your employer operates the salary sacrifice - some will put all the savings from both the employee and employer National Insurance contributions into your pension pot, some will hold some money back to pay for the scheme. But however it is done, you are likely to be saving at least an extra 1% of NICS on higher rate contributions and 11% on basic rate contributions due to NICS relief.But do I get 40% tax relief on the full £6,000 saved each year or 40% on £200 and 20% on £5,800 ?? How does it work?
But as it is a salary sacrifice scheme, you are likely to be getting at least 41% income tax and NICS relief combined on higher rate income, and 31% tax and NICS relief on basic rate income.Let say I also get an annual bonus of £10,000 - how does that affect te equation?Taxable income - £43,875 = Higher rate incomeSo will my £10k bonus be taxed in full at the higher rate (HR?). Or should I receive a 20% rebate given that I've only had 20% tax relief on AVC contributions of £5,800?0 -
Your bonus will attract HR via PAYE system.
You claim tax back at year end (5th April) via tax return - if one isn't received write to tax office requesting repayment.0 -
hugheskevi wrote: »This sounds as if it is a salary sacrifice scheme
How do you deduce that ?0 -
How do you deduce that ?
From OP's original statement:I pay in to a Company organised AVC scheme £500 per month which I'm told is taken from my salary before tax and NI contributions.0 -
If that's the case (which isn't the way I saw it) I'm rather surprised that OP doesn't know that deductions are being made under a salary sacrific arrangement. Your quote suggests conventional (ie they are paid by employee not employer) AVC contributions.0
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Sounds to me like the OP makes contributions under a 'net pay' arrangement, rather than a salary sacrifice.0
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I agree with Kevin - the amount of national insurance payable is the same under a net-pay arrangement and a relief at source arrangement. This is because NI is calculated from your gross salary.
If the pension deduction affects the amount of NI payable - then it has to be salary sacrifice.0 -
One way to find out ......
The Salad - do you have a salary sacrific arrangement?0
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