Approaching 40% Tax Bracket

FudgeHouse

Hi all

Hoping for some advice and clarity around the position that I will be in this financial year :

I work full time, with a gross basic salary of just over £32,000 per annum. I also accrue an On Call allowance and Overtime as part of this roll and would estimate that this amounts to an additional £9000 gross per annum - so £41,000 from that job.
My Tax code in this role is 944L

In addition to this I do some part time weekend work for a different organisation, which pays about £6500 gross per annum.
My Tax code in this role is BR

Therefore total earned income of about £47,500

At face value this puts me in to the 40% tax bracket and I should pay 40% (rather than 20%), on anything over £41,451. Using the figures above I estimate that this means I would have to pay an additional £1209.80 in income tax this financial year.

However, I have some queries :

1. From my full time employment I pay in to a company pension scheme at a percentage of 8%. This is achieved through a salary sacrifice scheme. I understand that this effectivelly reduces my gross salary from £41,000 to £37,720.
For Income Tax Purposes is the Inland Revenue interested in the £41K or the £37,720 ?

2. If I were to make AVCs in to my pension, can these be also done through Salary Sacrifice, and if so could I simply pay any earnings above £41,451 in to my pension so as not to be taxed on it?

3. If I can't keep things below the threshold, once my full time role earns me more than £41,451 does the Inland Revenue let my part-time employers know that they need to change my tax code to deduct at 40% ?

4. What happens if my full time employment income does not reach £41,451 , but the combination of the full and part-time work does exceed that amount? How does each employer know that they need to start deducting at 40% instead of 20%


Any help, or other thoughts really appreciated as this is the first financial year I have been in this position. Thanks

nomunnofun

1. £37720

2. No - it does not really work like that. You earn £44220 after pension contributions. To eliminate HR you would need to put £2216 into an AVC or other pension plan. HMRC will make this up to £2770.
(41450 plus 2770 = 44220)

You would claim the additional tax relief of £554 through self assessment or, preferably, by informing HMRC of your contribution and obtaining the extra relief through your PAYE code number.

3. They will - but eventually and you may owe a fortune by that time. Currently I would be informing HMRC of your current earnings from each job.

4. They will only know if informed by HMRC.

CLAPTON

whether you can make AVCs via salary sacrifice depends upon your employer or indeed if it is take gross or net

FudgeHouse

nomunnofun wrote: »

2. No - it does not really work like that. You earn £44220 after pension contributions. To eliminate HR you would need to put £2216 into an AVC or other pension plan. HMRC will make this up to £2770.
(41450 plus 2770 = 44220) .

Thanks, however I don't really understand what you mean when you say that HMRC will make this up to £2770 - please could you clarify?

CLAPTON

FudgeHouse wrote: »

Thanks, however I don't really understand what you mean when you say that HMRC will make this up to £2770 - please could you clarify?

if you make pension contributions from taxed income then for every 1,000 you pay, the pension company gross this up to
1000/.8 = 1250 i.e HMRC pay the 250 which is the tax back at 20%

zygurat789

CLAPTON wrote: »

if you make pension contributions from taxed income then for every 1,000 you pay, the pension company gross this up to
1000/.8 = 1250 i.e HMRC pay the 250 which is the tax back at 20%

And you thought HMRC only took money off you:rotfl: