When to you calculate NI

ChrissyR_2

Hi all,

in trying to calculate how much of my income is above HRT in what order do I take things off?
I get a tax allowance, there are the tax bands and there are my pension contributions but when do you take the NI value? Is this from the total pay, somewhere in the middle or at the end? It is mainly if pension contributions are before after NI calculation?

dipsomaniac

Company pension contributions are taken before income tax (gross pay). NI contributions are also calculated on your gross pay. If under 65, income above the current threshold of £39,825 (5225 + 34600) is taxed at 40%.

omg_3

Does this calculation assume your tax code is 522?

ChrissyR_2

When you say gross is this all or just the 11% between the lower and upper limit and then 1% above that ie the first £100 a week (5200) does not pay any NI?
An example if you earn £41000 would be:
34840 at 11% = 3832.40
6160 at 1% = 61.60
total = 3894

or

5200 free
29640 at 11% = £3260.40
960 at 1% = £9.60
total 3270

The HMR site states you pay - Employees’ primary Class 1 rate between primary threshold and upper earnings limit

So is that he second example?

But the question I had (and probably didn't pose very well is:
At this stage say I have earned 41000, I can take away my tax allowance 41000-5225 = 35775 which is 1175 above the HRT level.
But do I take away the NI before I work out what is at 40% (either the
3894 or 3270) which (both) takes me below HRT.

Or does the tax man say I want 40% of the extra and you still owe me NI?
(this is actually get more complicated than I thought!)

jem16

ChrissyR wrote: »

But the question I had (and probably didn't pose very well is:
At this stage say I have earned 41000, I can take away my tax allowance 41000-5225 = 35775 which is 1175 above the HRT level.

Correct so far.

But do I take away the NI before I work out what is at 40% (either the
3894 or 3270) which (both) takes me below HRT.

No you can't. The only thing that you can take away are contributions to a company pension scheme which are taken before you are taxed. In your example you would need to pay £1175 into the pension to keep you out of the higher rate tax.

Or does the tax man say I want 40% of the extra and you still owe me NI?
(this is actually get more complicated than I thought!)

Pretty much.

ChrissyR_2

Thanks jem16 - so to work out what falls into HRT I totally ignore NI.

So for the rule that you can pay 100% of your earnings into a pension you would still have to contribute the NI payments each year?

jem16

I would assume so.

Dithering_Dad

You can do a Salary Sacrifice and pay the amount of money you "sacrifice" into your pension. This way you wouldn't have to pay NI on the pension contribution.

It's only really worth doing though if you're a basic rate tax payer or your sacrifice is such that you become a basic rate tax payer, because once you get over the HEL, you're only saving 1% NI.

As an example, if you earned 60k and wanted to pay 50% of your income into a pension via a salary sacrifice, you would effectively be earning £30k and pay tax/NI on that and the remaining 30k would go into your pension unsullied by the dirty tax man.

You have to have an employer though who provides a salary sacrifice scheme and you also need to realise that if your salary has halved, then any benefits based on a percentage of your salary will also be reduced, such as Share Schemes, employer contributions to your pension, etc.