Tax relief question

eastcorkram

Sorry for the dumb question!

I'm trying to figure out the best amount to salary sacrifice, in order to get out of the 40% tax bracket.

On the back of my notice of coding, it says that it's 20% up to 31,865, and then 40% from there up to 150,000.

What I don't understand is this. Do I have to add on my tax free allowance onto that figure, or is that not relevant?

i am paid weekly, and my basic pay is £627, but with overtime and stuff, my gross pay is usually around £800 to £820.

My tax code is 519L. The percentage of salary sacrifice is only done on the basic pay. So.................how much should it be to avoid the 40% tax? Hope that makes sense!!

PeacefulWaters

Add on your £10k allowance.

You can earn £41,865 without paying HRT.

notanewuser

PeacefulWaters wrote: »

Add on your £10k allowance.

You can earn £41,865 without paying HRT.

They don't have a £10k allowance. They have a £5199 allowance.

OP, you start paying 40% tax at £37064.

Your basic pay is £32,604. If your overtime is guaranteed every week then you're earning a maximum of £42,640 (based on £820 per week). You need to sacrifice £5050 per year (or £97 per week) to cover it. However, this didn't take into account any weeks (holidays etc) where you're not earning £820.

jem16

eastcorkram wrote: »

What I don't understand is this. Do I have to add on my tax free allowance onto that figure, or is that not relevant?

It is relevant. You would have to add on your personal allowance.

My tax code is 519L. The percentage of salary sacrifice is only done on the basic pay. So.................how much should it be to avoid the 40% tax? Hope that makes sense!!

Your tax code of 519L is far lower than the normal tax code of 1000L.

What is the reason for this? Do you have taxable benefits such as a company car or medical insurance? Or are you paying back tax underpaid in a previous year?

Technically , because of this tax code you only have £5199 of personal allowance instead of £10,000 so you are going to reach the higher rate tax band quicker. In your case HRT will start at £37064.

eastcorkram

notanewuser wrote: »

They don't have a £10k allowance. They have a £5199 allowance.

OP, you start paying 40% tax at £37064

So anything I earn over about £712 per week then. So If I sacrifice say £110 per week, I should be OK. So at 18%, as it's on the basic, should do it. Have I got that right?

eastcorkram

jem16 wrote: »

Your tax code of 519L is far lower than the normal tax code of 1000L.

What is the reason for this?

Ha ha! My tax code is brilliant now. I've had K289 in the past!!
It is for living accommodation.

jem16

eastcorkram wrote: »

So anything I earn over about £712 per week then. So If I sacrifice say £110 per week, I should be OK. So at 18%, as it's on the basic, should do it. Have I got that right?

Sounds correct to me.

Mr_Proctalgia

Some assumptions first.

You work a basic 39 hour week?

You 40% tax limit is 31865 + 5199 = £37064

You therefore earn on the above assumptions £16.10 per hour at basic hours only - This produces a gross 39 hour week of £627.90 or put it another way £32650.8 pa.

To get your average income up to the stated £810-£820 you are doing around 7.6 hours overtime @time and a half per week (Ignoring holidays etc)

This gives a gross of £811.51 per week and a gross annual income of £42214.20.

You need to get this down to below around £37000 by sacrificing you basic pay down to £13.50 ph assuming your overtime stays at the higher rate of £16.10 ph

I think?

Worked out using http://www.thesalarycalculator.co.uk/hourly.php

bigadaj

I suppose it's dependent on the exact amount of overtime. Given that it's a salary sacrifice arrangement then the additional benefit on the higher rate tax is proportionately less than would be the case if it were just a normal pension contributions so rather than 40% reducing to 20% it's 42% reducing to 32%, though the latter figures could be higher if your employer shares the employers iNI saving. If it were me then I'd prefer to slightly over pay to maximise the tax advantage , and other things could affect your marginal tax rate like savings or dividends if you get these.

PeacefulWaters

notanewuser wrote: »

They don't have a £10k allowance. They have a £5199 allowance.

OP, you start paying 40% tax at £37064.

Your basic pay is £32,604. If your overtime is guaranteed every week then you're earning a maximum of £42,640 (based on £820 per week). You need to sacrifice £5050 per year (or £97 per week) to cover it. However, this didn't take into account any weeks (holidays etc) where you're not earning £820.

Mine was a lazy post.

I did assume the OP would work through the other impacts that subsequently reduce their allowance.

notanewuser

PeacefulWaters wrote: »

Mine was a lazy post.

I did assume the OP would work through the other impacts that subsequently reduce their allowance.

Not just lazy but incorrect in the OP's case. They'd helpfully given their tax code in the first post too!! You said nothing about them having to adjust or look at anything else. Just a figure given and nothing more. It was actually rather unhelpful!