Calculating when I pay 40% tax (& effect on Child benefit)

dazzer252

Hi,

I would welcome some advice on how I can calculate when I will start paying 40% income tax.

Due to a promotion at work my basic income is now £42'000. I know that I have a personal allowance of £7474 and need to add this to the £35000 limit, i.e anything over £42'475 would in theory be payable at 40%.

My confusion is with my employers pension. I work in the public sector and currently contribute 11% of my salary to this scheme. Will this effect when I will start paying the 40% income tax and if so how much can I approx earn before paying it?

I don't have any taxable savings or other income if that helps!

I am just working out when my tax will change as I may opt to take any extra overtime as time off rather than jump into this tax bracket.

My main reason for asking this is the effect it will have on our child benefit. My partner only works part time so I understand I need to stay out of the higher rate bracket from 2013 to avoid loosing this benefit?

Many thanks for any help!

Darren

HappyMJ

Depends on what is on your P60. If you can do without the pay rise then consider contributing it to the pension.

hcb42

yes, it would be deducted before you pay tax (not all the time, but likely in your case with you being public sector and clearly in a decent pension scheme)

However, I would rather earn £50K a year than £42K with child benefit! There will come a point where you will be better off anyway assuming you are not at the peak of your career.

CLAPTON

pension payments come off before tax

for this tax year then
if e.g. you earned 45,000 and paid 11% pension on all your earning then your 'taxable' pay would be 40,050 so you would only pay 20% tax

however if your pay was 50,000 then your taxable pay would be 44,500 so you would pay 40% on 2,025

that assumes that all your pay including overtime is pensionable

the formula for just avoiding 40% tax is 42,745/(0.89) = £47,724.72

dazzer252

I am afraid don't have the opition of not taking the pay rise as things like this aren't flexable in the public sector I work in. Basically I am going to be earning £42'000 and am just worried about claiming any extra overtime as money in case I go into 40% tax and then we loose our child benefit.
I thought (may be incorrect) that if you pay into a pension scheme then this can have an impact on when you start paying 40% income tax?

dazzer252

CLAPTON wrote: »

pension payments come off before tax

for this tax year then
if e.g. you earned 45,000 and paid 11% pension on all your earning then your 'taxable' pay would be 40,050 so you would only pay 20% tax

however if your pay was 50,000 then your taxable pay would be 44,500 so you would pay 40% on 2,025

that assumes that all your pay including overtime is pensionable

Thanks thats was very very helpful:beer:. In answer to your last point I don't believe we pay any pension on overtime we earn so will that make any difference?

CLAPTON

dazzer252 wrote: »

Thanks thats was very very helpful:beer:. In answer to your last point I don't believe we pay any pension on overtime we earn so will that make any difference?

yes of course it makes a difference

you need your taxable tax to be less that 42,475
where taxable pay = gross pay less pension contributions

dazzer252

Thanks again.

Sorry if this is painful (tax was never my thing) so if I assume I earn £42'000 then I need to deduct my 11% pension contributions from this. £42'000 - £4620 (11%) = £37'380 is my current taxable pay?

I could then earn a further £5095 in overtime (£42475 minus above) before moving into the 40% tax bracket? This assumes that I don't pay pension on this overtime?

CLAPTON

dazzer252 wrote: »

Thanks again.

Sorry if this is painful (tax was never my thing) so if I assume I earn £42'000 then I need to deduct my 11% pension contributions from this. £42'000 - £4620 (11%) = £37'380 is my current taxable pay?

I could then earn a further £5095 in overtime (£42475 minus above) before moving into the 40% tax bracket? This assumes that I don't pay pension on this overtime?

yes, exactly right

whitewing

How many children do you have, ie how much child benefit do you currently receive?

dazzer252

It goes to my partners acount directly but two children is around £120 a month I think from memory?