Trying to assess tax position

sennaf11988

I had a payrise this year which took my gross salary to 43.5K. I had not realised until recently that I needed to start thinking about higher rate taxpayer issues! I believe the current threshold (including personal allowance) is £41,865

Although my gross is 43.5K I am currently using a salary sacrifice childcare voucher scheme for which I claim £243 per month. This brings my salary down to £40,584. On top of that I am about to be enrolled in the FSB pension scheme. This is an auto-enrollment pension. I will only be contributing 0.8% of my salary to begin with. I am assuming the contribution will be calculated based upon my salary following salary sacrifice, making the annual total contribution the princely sum of £324.67. This will (I assume) bring my salary for tax purposes down to £40,259.

1. Can anyone confirm whether I am calculating all this correctly?
2. It appears that as soon as I am considered to be a higher rate taxpayer my max childcare voucher order goes down to £124. Does anyone know how they determine 'higher rate' taxpayer for this? What I mean is, is it based upon gross salary (in which case I should only be claiming £124 and my salary after childcare vouchers would then be above the higher threshold)
3. Am I right to calculate the pension contribution on the salary sacrificed salary or should that be on the gross?

Once I add in the effect of a small bi-annual bonus plus Christmas bonus and small interest and dividend payments I would be very surprised if I am not on or over the higher threshold. In this case I am assuming the most tax efficient way to proceed would be to increase my pension contributions? Until now I had planned to invest for retirement mostly in ISA's, but am now beginning to see the tax benefits of a pension.

I would really like to be clear on all these issues going forward so I can plan accordingly as I am not very savvy when it comes to the tax system. I am also planning to stooz some credit card cash to partially offset the interest on my mortgage and don't want to end up paying an extra 20% tax as I will be using non-ISA accounts.

zygurat789

sennaf11988 wrote: »

I had a payrise this year which took my gross salary to 43.5K. I had not realised until recently that I needed to start thinking about higher rate taxpayer issues! I believe the current threshold (including personal allowance) is £41,865

Although my gross is 43.5K I am currently using a salary sacrifice childcare voucher scheme for which I claim £243 per month. This brings my salary down to £40,584. On top of that I am about to be enrolled in the FSB pension scheme. This is an auto-enrollment pension. I will only be contributing 0.8% of my salary to begin with. I am assuming the contribution will be calculated based upon my salary following salary sacrifice, making the annual total contribution the princely sum of £324.67. This will (I assume) bring my salary for tax purposes down to £40,259.

1. Can anyone confirm whether I am calculating all this correctly?
2. It appears that as soon as I am considered to be a higher rate taxpayer my max childcare voucher order goes down to £124. Does anyone know how they determine 'higher rate' taxpayer for this? What I mean is, is it based upon gross salary (in which case I should only be claiming £124 and my salary after childcare vouchers would then be above the higher threshold)
3. Am I right to calculate the pension contribution on the salary sacrificed salary or should that be on the gross?

Once I add in the effect of a small bi-annual bonus plus Christmas bonus and small interest and dividend payments I would be very surprised if I am not on or over the higher threshold. In this case I am assuming the most tax efficient way to proceed would be to increase my pension contributions? Until now I had planned to invest for retirement mostly in ISA's, but am now beginning to see the tax benefits of a pension.

I would really like to be clear on all these issues going forward so I can plan accordingly as I am not very savvy when it comes to the tax system. I am also planning to stooz some credit card cash to partially offset the interest on my mortgage and don't want to end up paying an extra 20% tax as I will be using non-ISA accounts.

Your Gross salary is £40,584
Your pension 8% will be £3,246.72 pa
Your taxable income is £37,337.
Put the share and deposits in the wife's name so it's not your income.
Only your employer can tell you which figure he will use to calculate your pension.
You seem to have been a bit pessimistic over your tax position

purdyoaten

sennaf11988 wrote: »

I had a payrise this year which took my gross salary to 43.5K. I had not realised until recently that I needed to start thinking about higher rate taxpayer issues! I believe the current threshold (including personal allowance) is £41,865

Although my gross is 43.5K I am currently using a salary sacrifice childcare voucher scheme for which I claim £243 per month. This brings my salary down to £40,584. On top of that I am about to be enrolled in the FSB pension scheme. This is an auto-enrollment pension. I will only be contributing 0.8% of my salary to begin with. I am assuming the contribution will be calculated based upon my salary following salary sacrifice, making the annual total contribution the princely sum of £324.67. This will (I assume) bring my salary for tax purposes down to £40,259.

1. Can anyone confirm whether I am calculating all this correctly?
2. It appears that as soon as I am considered to be a higher rate taxpayer my max childcare voucher order goes down to £124. Does anyone know how they determine 'higher rate' taxpayer for this? What I mean is, is it based upon gross salary (in which case I should only be claiming £124 and my salary after childcare vouchers would then be above the higher threshold)

Based on taxable income after pension contributions but not, obviously, childcare vouchers. So you would be higher rate for the purposes of the childcare vouchers and eventually for tax purposes if the childcare vouchers are reduced.



3. Am I right to calculate the pension contribution on the salary sacrificed salary or should that be on the gross?

Once I add in the effect of a small bi-annual bonus plus Christmas bonus and small interest and dividend payments I would be very surprised if I am not on or over the higher threshold. In this case I am assuming the most tax efficient way to proceed would be to increase my pension contributions? Until now I had planned to invest for retirement mostly in ISA's, but am now beginning to see the tax benefits of a pension.

I would really like to be clear on all these issues going forward so I can plan accordingly as I am not very savvy when it comes to the tax system. I am also planning to stooz some credit card cash to partially offset the interest on my mortgage and don't want to end up paying an extra 20% tax as I will be using non-ISA accounts.

You may not consider yourself 'savvy' but most of what you have stated is absolutely correct!

purdyoaten

zygurat789 wrote: »

Your Gross salary is £40,584
Your pension 8% will be £3,246.72 pa
Your taxable income is £37,337.
Put the share and deposits in the wife's name so it's not your income.
Only your employer can tell you which figure he will use to calculate your pension.
You seem to have been a bit pessimistic over your tax position

I believe that the op stated 0.8& pension contribution as opposed to 8%.

sennaf11988

Thanks to both of you for your replies. Yes I did state 0.8% rather than 8% as the pension contribution.

It has been around 3 months or so since my rise, so it seems that I have received extra childcare vouchers and will need to pay some of that tax back.

Based upon both of your comments it seems like the sensible thing would be to contribute around 10% of my salary to the pension.

Gross: £43,500
Pension 10%: £4350
Taxable income: £39150

This would allow me to keep both the full amount of the vouchers tax free which I can use for some time and also give me a bit of headroom for additional income (I will have to add the numbers up properly and see if I need more).

Thanks purdyoaten for your nice comment, glad I got most of it right. Thanks again to both of you for your help.

purdyoaten

sennaf11988 wrote: »

Thanks to both of you for your replies. Yes I did state 0.8% rather than 8% as the pension contribution.

It has been around 3 months or so since my rise, so it seems that I have received extra childcare vouchers and will need to pay some of that tax back.

Based upon both of your comments it seems like the sensible thing would be to contribute around 10% of my salary to the pension.

Gross: £43,500
Pension 10%: £4350
Taxable income: £39150

This would allow me to keep both the full amount of the vouchers tax free which I can use for some time and also give me a bit of headroom for additional income (I will have to add the numbers up properly and see if I need more).

Thanks purdyoaten for your nice comment, glad I got most of it right. Thanks again to both of you for your help.

Sounds good to be - a better pension provision, no higher rate tax and higher childcare vouchers.

Spidernick

You might also want to check exactly what elements of your salary are deemed by your employer to be 'pensionable' to keep a track of things. For example, my base salary is pensionable, but my car allowance is not and I think that's the norm.

If your employer will match your pension contributions in part, then that's also an incentive for paying into the pension, as would be avoiding/minimising the child benefit claw back, should you hit £50K+ earnings in the future.

If your employer operates a flexible benefits scheme then you can always but more holiday to reduce your taxable income as well.

sennaf11988

Thanks for warning me about the pensionable element of my salary spidernick. Just looking into that now as my employer is also trying to work out what it should be based on .e.g. Qualifying earnings, total pay etc.

As you say (and if I am understanding correctly) if they use qualifying earnings for instance I will need to increase my contribution percentage if I want to limit my higher tax liability. This is because the pensionable earnings will themselves only be based upon a percentage of my total salary.

My employer will only be contributing the minimums required by auto-enrollment.

purdyoaten

Is the minimum contribution not 1%?

http://www.thepensionsregulator.gov.uk/employers/e-brochure/index.html#12

Savvy_Sue

purdyoaten wrote: »

Is the minimum contribution not 1%?

http://www.thepensionsregulator.gov.uk/employers/e-brochure/index.html#12

If the OP's employer hasn't yet reached their staging date then no need for either to contribute anything, BUT yes, for those companies who have to start auto-enrolment before September 2017 then the minimum is 1% from both employer and employee, so sounds as if they are not yet 'in'.

Either that or they're getting it wrong ...

sennaf11988

To begin with it is:

1% - from employer
0.8% - from employee
0.2% - from the Government

Minimum total contribution 2%

It scales up in 2017 and 2018 to finish at min 8% total contribution (4% from employee)

Savvy Sue - You are correct, we are not 'in' yet and my employer is kindly going to contribute the 1% prior to being forced to at their staging date.