Query - salary, pension, childcare vouchers

breakingbad

Hi all,

I have a quick query - I received a letter from my employer stating that, due to an annual basic earnings assessment, my childcare vouchers entitlement was being reduced from £243/mth to £124/mth (as they deem me a higher rate taxpayer).

Here's my figures:

Gross salary: £45655
LGPS Pension contributions (8.5%): £3880.68
Taxable Salary: £41774.32
Tax code is 1170L (due to a union subscription tax relief)

So, it is my understanding that it is my taxable salary that needs to be over £45k in order for me to be a higher rate taxpayer. Certainly, my pay slips show income tax at 20% of salary after pension contributions.

Any advice?

Thanks!

Dazed_and_confused

£45000 is only relevant to part of the UK, do you live in Scotland?

breakingbad

No, I live in England.

£45k is when higher rate tax kicks in, apparently, this is according to the .gov website?

Kynthia

Perhaps the Cutting Tax section of the forum can help.

Makkusu

breakingbad wrote: »

Hi all,

I have a quick query - I received a letter from my employer stating that, due to an annual basic earnings assessment, my childcare vouchers entitlement was being reduced from £243/mth to £124/mth (as they deem me a higher rate taxpayer).

Here's my figures:

Gross salary: £45655
LGPS Pension contributions (8.5%): £3880.68
Taxable Salary: £41774.32
Tax code is 1170L (due to a union subscription tax relief)

So, it is my understanding that it is my taxable salary that needs to be over £45k in order for me to be a higher rate taxpayer. Certainly, my pay slips show income tax at 20% of salary after pension contributions.

Any advice?

Thanks!

Yes the 2017/18 basic rated tax band is £34,500, we plus the £11,500 personal allowance meaning you can earn £45,000 before you become a higher rated taxpayer.

Your 1170L Tax Code means you've an additional £200 tax free allowance increasing your possible basic rated earnings to £45,200.

So yes you have £455 HR income...

breakingbad

But i was advised that my pension contribution is taken pre-tax, thus reducing my taxable income - no?

Makkusu

breakingbad wrote: »

But i was advised that my pension contribution is taken pre-tax, thus reducing my taxable income - no?

Partially correct. Pension reduces the tax you pay but it does not reduce your gross income for the year. The fact is, you still earn £45,655, and £x of that goes into your pension.

You can make personal pension contributions or gift aid donations to extend your basic rated tax band.

SuzieSue

Makkusu wrote: »

Partially correct. Pension reduces the tax you pay but it does not reduce your gross income for the year. The fact is, you still earn £45,655, and £x of that goes into your pension.

.

What if the pension contributions are paid via salary sacrifice? Wouldn't that reduce the gross income?

Makkusu

SuzieSue wrote: »

What if the pension contributions are paid via salary sacrifice? Wouldn't that reduce the gross income?

Yes Salary Sacrifice works different so if your employer offers that they might work with you to find a suitable package to help you.

Just cover off all the pros and cons of salary sacrifice before you set it up.

girllikeme1

Salary sacrifice extra pension so that you're below the threshold. You can then qualify for the £243 of Childcare Vouchers each month, put extra into your pension, and probably end up with a similar net monthly pay.