Who can help me to understand:Income tax and pension

cherry2017

Self-employed,
If my income is 14000 (after expense, net income?)for this year, if I pay 3000 to a pension or sipp, how to calculate my income tax?
:beer:

Dazed_and_confused

Paying that amount into a personal pension or SIPP won't have any affect on your tax bill.

You are meant to show it on your tax return but it will make no difference to your self assessment tax bill.

But your pension company will claim basic rate tax relief from HMRC and add that to your pension so you will have £3,750 in your pension fund.

Dazed_and_confused

This is actually much better than you might have expected though.

If £14,000 is your only source of taxable income then for 2017:18 tax year your tax bill will only be £500 so you are getting more tax relief at source through the pension fund (£750) than if you received no relief at source and it reduced your personal tax bill.

Your self assessment bill will probably be higher than £500 due to class 2 and 4 national insurance

cherry2017

So sipp and income tax doesn't affect each other , Right? Thanks

Dazed_and_confused

No, lots of people pay into a SIPP partly because of the tax advantages but in your particular circumstances there are none.

The main (but not only) advantage is that the gross SIPP contribution increases the amount you can pay 20% tax on, which in turn can reduce how much 40% tax you pay.

But you are nowhere near paying 40% tax so although your basic rate tax band would be increased you will not benefit from it.

The tax relief added to your pension is all you will get with your level of income.