Calculating higher rate tax payer optimum additional pension contributions

beaker141

museumworker wrote: »

New info... His salary is £68100 pa
He has a car allowance of £240pm on top (= £2880pa) He is convinced it is not taxed :question:but I think it will be counted towards his net income.
He pays £255.38 pm into the pension (4.5% of salary) = £3064.56pa
He has childcare vouchers of £124 pm = £1488pa.
He has the taxable benefit of healthcare (which I believe is £35 pm = £420pa)

Here goes my attempt to work it out...

Current taxable income = £68,100 (salary) + £2,880 (car allowance) + £420 (healthcare scheme) = £71,400.
MINUS £1,488 (childcare voucher) + £3,064.46 (pension ) = £66,847.54

To get to £50K he would need to contribute an additional £16,847.54 pa to his pension = £1,403 pm

Correct?
And the difference in his take home pay for that would be from £3,604.66 to £2,790.92 (using http://www.thesalarycalculator.co.uk/salary.php) which is £813.74

Let me know if I've got the wrong end of the stick!

I cant comment on the above, but dont forget at 50k, you can then claim and keep the child benefit - I'm assuming you don't currently claim that as you dont mention the higher income charge in what youre paying in Tax?

zagfles

museumworker wrote: »

I'm not quite sure I understand this, but reading through I suppose our intention, aside from building his pension fund, is to reduce his adjusted net income to just under £50K.

It sounds complicated but in the end it works out to the same thing whether you pay into the employer pension or a SIPP. Other than you get NI relief if you use salary sacrifice to pay into the employer pension.

zagfles

museumworker wrote: »

New info... His salary is £68100 pa
He has a car allowance of £240pm on top (= £2880pa) He is convinced it is not taxed :question:but I think it will be counted towards his net income.
He pays £255.38 pm into the pension (4.5% of salary) = £3064.56pa
He has childcare vouchers of £124 pm = £1488pa.
He has the taxable benefit of healthcare (which I believe is £35 pm = £420pa)

Here goes my attempt to work it out...

Current taxable income = £68,100 (salary) + £2,880 (car allowance) + £420 (healthcare scheme) = £71,400.
MINUS £1,488 (childcare voucher) + £3,064.46 (pension ) = £66,847.54

To get to £50K he would need to contribute an additional £16,847.54 pa to his pension = £1,403 pm

Correct?
And the difference in his take home pay for that would be from £3,604.66 to £2,790.92 (using http://www.thesalarycalculator.co.uk/salary.php) which is £813.74

Let me know if I've got the wrong end of the stick!

Check the figures against his payslips to see what's being taxed and to confirm the amounts. Sometimes car allowances are paid partially tax free if he does business miles and gets paid less than the HMRC rate which for cars is 45p per mile for the first 10,000 miles.

museumworker

museumworker wrote: »

New info... His salary is £68100 pa
He has a car allowance of £240pm on top (= £2880pa) He is convinced it is not taxed :question:but I think it will be counted towards his net income.
He pays £255.38 pm into the pension (4.5% of salary) = £3064.56pa
He has childcare vouchers of £124 pm = £1488pa.
He has the taxable benefit of healthcare (which I believe is £35 pm = £420pa)

Here goes my attempt to work it out...

Current taxable income = £68,100 (salary) + £2,880 (car allowance) + £420 (healthcare scheme) = £71,400.
MINUS £1,488 (childcare voucher) + £3,064.46 (pension ) = £66,847.54

To get to £50K he would need to contribute an additional £16,847.54 pa to his pension = £1,403 pm

Correct?
And the difference in his take home pay for that would be from £3,604.66 to £2,790.92 (using http://www.thesalarycalculator.co.uk/salary.php) which is £813.74

Let me know if I've got the wrong end of the stick!

Just confirmed in terms of his car allowance, tax and NI is settled by his business on his behalf, so assume this is no longer counted as taxable income?

In which case Current taxable income = £68,100 (salary) + £420 (healthcare scheme) = £68,420.
MINUS £1,488 (childcare voucher) + £3,064.46 (pension ) = £63,867.54

To get to £50K he would need to contribute an additional £13,867.54 pa to his pension = £1,156 pm

Difference in take home pay would be £628.34 and we would no longer be subject to the higher income charge (approx £220pm).

AnotherJoe

". £68,100 (salary) + £420 (healthcare scheme) = £68,420. "

£68,520

zagfles

museumworker wrote: »

Just confirmed in terms of his car allowance, tax and NI is settled by his business on his behalf, so assume this is no longer counted as taxable income?

What does that mean? If the car allowance is taxable then it counts as part of his taxable income. If for some reason it's not taxable (eg he does enough business mileage to make it all come within the HMRC allowed rates) then there's no tax to pay.

Other than PAYE settlement agreements (see https://www.gov.uk/paye-settlement-agreements which wouldn't apply to a car allowance) an employer can't just pay the tax of an employee. They can gross it up, or they can payroll it, but if tax is due then it's taxable income.

You need to look at his payslips and work out what he's being taxed on. Post the info from a couple of consecutive ones if you don't know how (post all the numbers on the payslips apart from personal details like NI number employee number etc).

museumworker

zagfles wrote: »

What does that mean? If the car allowance is taxable then it counts as part of his taxable income. If for some reason it's not taxable (eg he does enough business mileage to make it all come within the HMRC allowed rates) then there's no tax to pay.

Other than PAYE settlement agreements (see https://www.gov.uk/paye-settlement-agreements which wouldn't apply to a car allowance) an employer can't just pay the tax of an employee. They can gross it up, or they can payroll it, but if tax is due then it's taxable income.

You need to look at his payslips and work out what he's being taxed on. Post the info from a couple of consecutive ones if you don't know how (post all the numbers on the payslips apart from personal details like NI number employee number etc).

Good question, this has been puzzling me today. Planning to get the latest P60 pulled off his work portal next week. Meanwhile, I have this info:

In accordance with HMRC, Company xx are required to put entries through 'employees' pay slip to ‘gross up’ the net taxable car allowance and therefore settle the Tax and NI settled by Company X on behalf of the employee. This is done annually in March.

zagfles

museumworker wrote: »

Good question, this has been puzzling me today. Planning to get the latest P60 pulled off his work portal next week. Meanwhile, I have this info:

In accordance with HMRC, Company xx are required to put entries through 'employees' pay slip to ‘gross up’ the net taxable car allowance and therefore settle the Tax and NI settled by Company X on behalf of the employee. This is done annually in March.

Right - so it's put through his payslip, so it's taxable income. They seem to be doing it in a complicated way, but the bottom line is it's taxable.

Check his March payslip. If the car allowance is £240 per month net, then I expect the figure put through his March payslip would be (240*12)/0.58 = £4965.52 with a deduction off the net of £2880 (what he's actually been paid). Which should work out having no effect on his take home pay.

0.58 being what's left after 40% tax and 2% NI, so to gross up for a higher rate taxpayer divide by 0.58.

So if this is right you need to add £4965.52 to his taxable income. This will be included in his P60 income.

museumworker

OK, here goes!

Mr MW May payslip:
Tax Code: 1142L
Tax Basis: Cumulative
NI Category: A
Pay Rate: 68100.00 per annum

Total Gross Pay: 5791.00
Total Deductions: 1943.17
Net Pay: 3847.83

PAYMENTS
Contractual Pay 5675.00

Salary Sacrifice Childcare -124.00
Car Allowance 240.00

DEDUCTIONS
Tax 1178.87
National Insurance 404.42
Gym Membership 7.50
Private Healthcare 97.00
Employee Pension Cont 255.38

CUMULATIVE FIGURES
Taxable Pay 10591.24
PAYE 2357.73
NI Employee 808.84
Employee Pension Cont 510.76
Employer Pension Cont 851.26

museumworker

Mr MW June payslip:
Tax Code: 1142L
Tax Basis: Cumulative
NI Category: A
Pay Rate: 68100.00 per annum

Total Gross Pay: 5796.50
Total Deductions: 1943.17
Net Pay: 3853.83

PAYMENTS
Contractual Pay 5675.00

Salary Sacrifice Childcare -124.00
Car Allowance 240.00
Ticket refund non taxed 5.50


DEDUCTIONS
Tax 1178.87
National Insurance 404.42
Gym Membership 7.50
Private Healthcare 97.00
Employee Pension Cont 255.38

CUMULATIVE FIGURES
Taxable Pay 15886.86
PAYE 3536.60
NI Employee 1213.26
Employee Pension Cont 766.14
Employer Pension Cont 1276.89