Advice re ducking under the higher rate threshold please

downhillfast

Hi there

Up until July I was a basic rate tax payer and to be honest had never really thought much about tax as it was all just automatic and seemingly out of my control.

*** PAY DETAIL NOW DELETED FOR FUTURE PRIVACY ***

What I would like to know is am I working these things out properly..? Not necessarily the maths as such, but the concept? If so then can I use salary sacrifice benefits to get myself back under the threshold without losing too much of my take home pay if you know what I mean? We have voucher schemes that I could perhaps take advantage of... or would it be possible to whack some of it into my pension and still not see a fall in take home pay - does that make sense?

jem16

downhillfast wrote: »

What I would like to know is am I working these things out properly..? Not necessarily the maths as such, but the concept?

Concept is fine.

If so then can I use salary sacrifice benefits to get myself back under the threshold without losing too much of my take home pay if you know what I mean? We have voucher schemes that I could perhaps take advantage of... or would it be possible to whack some of it into my pension and still not see a fall in take home pay - does that make sense?

Paying more into your pension or using salary sacrifice for various benefits is obviously the way to go.

Whatever you do will still see a fall in take home pay but the point is that you are getting the benefit elsewhere.

xylophone

http://www.thesalarycalculator.co.uk/

http://www.hl.co.uk/pensions/interactive-calculators/tax-relief-calculator

https://www.gov.uk/donating-to-charity/gift-aid

downhillfast

jem16 wrote: »

Whatever you do will still see a fall in take home pay but the point is that you are getting the benefit elsewhere.

Yeah I get that it has to be lost somewhere but as we are half way through the tax year and I will have already paid a considerable amount of tax at the higher rate as my bonus and OT payments have already gone through and will have taken me over my monthly basic rate allowance... even with sacrificing a considerable amount of salary from now on shouldn't I see a reduction in tax as it will have to even out by tax year end?

I guess what I'm trying to do is work out how much I could sacrifice to get the most benefit without having to tighten the purse-strings too much at home :cool:

downhillfast

Forgot to mention that my pension is a SMART Pension... not sure how that affects things really???

SW17

downhillfast wrote: »

Yeah I get that it has to be lost somewhere but as we are half way through the tax year and I will have already paid a considerable amount of tax at the higher rate as my bonus and OT payments have already gone through and will have taken me over my monthly basic rate allowance... even with sacrificing a considerable amount of salary from now on shouldn't I see a reduction in tax as it will have to even out by tax year end?

I guess what I'm trying to do is work out how much I could sacrifice to get the most benefit without having to tighten the purse-strings too much at home :cool:

Other forum members are far better than me at explaining if/how any tax you've overpaid will get returned to you via payroll or tax code, but just a couple of other points:

It's definitely better long term to put more into pensions to be more tax-efficient, but of course you are locking away today's money for a considerable time (if you are far from retirement) to get the benefit, so it depends how much disposable income you have right now.

I'm being slightly pedantic, but you are not seeing a fall in take-home, you are just taking home a lower percentage of the gross pay above the higher rate threshold. And on that point, the difference is not 20%, it is only 10% in reality because although income tax rises from 20% to 40%, employee NI contributions fall from 12% to 2% at the same time.

As said by all, move it into a pension if you can afford it, especially by salary sacrifice. The SMART pension (to my knowledge) means that you get all the tax relief up front, and you (and your employer) also avoid NI contributions on the salary sacrifice amount.

xylophone

http://www.friendslife.co.uk/doclib/epen15a.pdf;jsessionid=4UWJDO0DOMW2ACWCDYYCFGAKYIPDIIWA

See page 4 about bonus sacrifice.

The above might be of interest - do you have a booklet relating to your SMART pension?

You could consider an additional personal pension?

SJD48

Higher risk but you can incest in a VCT and get 30% tax relief if you hold for 5 years.

thenudeone

PAYE Tax is always re-calculated every time you are paid, (on a cumulative basis), so the important thing is to work out the year end position and go from there.

Pensions have just got much more attractive, but age 55 may be some time away!

glitglit

Hi Guys, I am in the same boat only the breakdown is slightly different.

I earn 30k pa and salary sacrifice 2k pa to my pensio. Bonus payments are made throughout the year which vary. The total bonus payments over the year would never exceed 10k but average around 6k per annum. Interest on savings could be 2k and rental from properties 6k but this will vary also.
28k + 6k avg bonus+2K interest +6k rental = 42k

Would I need to change things or will I continue on as it is? I am right at the threshold as you can see.

Also I have a company car so my tax code is 165T. I dont know if this effects anything? Or are the tax bands just related to the personal allowance of 10k.
I hope you can help guys as I am still confused!

Thanks

zygurat789

glitglit wrote: »

Hi Guys, I am in the same boat only the breakdown is slightly different.

I earn 30k pa and salary sacrifice 2k pa to my pensio. Bonus payments are made throughout the year which vary. The total bonus payments over the year would never exceed 10k but average around 6k per annum. Interest on savings could be 2k and rental from properties 6k but this will vary also.
28k + 6k avg bonus+2K interest +6k rental = 42k

Would I need to change things or will I continue on as it is? I am right at the threshold as you can see.

Also I have a company car so my tax code is 165T. I dont know if this effects anything? Or are the tax bands just related to the personal allowance of 10k.
I hope you can help guys as I am still confused!

Thanks

Your tax code means you are being taxed on £8350 of income not taxed at source. This looks a bit high for just a car and may include something for your rents and maybe the additional 20% on interest.
But yes the benefits in kind must be added to your income calculation above to arrive at total taxable income; you could then reduce this to below the 40% threshold with contributions to your pension.
Have a look at the detailed calculation on your tax return.