Simple income tax question from novice :)

MetManMark

All

I have previously rented our old house out so am used to completing a self assessment tax return for this. However, we have sold our own house so this is now no longer an issue.

My posting relates to income tax. My salary is ~£45k plus ~ £1k annual bonus. My understanding is that once you earn £45k you pay 40% tax on whatever income you earn over that £45k limit. I don't have any other income although I have some bonds that go up ~£1k or £2k each year.

I understood - perhaps incorrectly - that there were a number of things that could be taken off your earnings before you were liable for paying the higher rate of tax. For example I pay ~£2k into a civil service pension and another £2k into a private pension. I also do "salary sacrifice" childcare vouchers at the max amount £3k per year.

So am I right in thinking that I can deduct the £7k from my total earnings? How do I declare these pensions etc? do HMRC get notified directly or do I need to fill in forms? And if so which ones?

Thanks in advance
Mark

BoGoF

The civil service pension and the salary sacrifice should show as a deduction from your gross salary. Your payslip should show a Gross figure and a taxable figure. You pay tax on the lower taxable so you may well be under the higher rate threshold. Post the figures from your payslip if you want it checked

Dazed_and_confused

Civil service pension is deductable but almost certainly not in the way you mean. If you dig out a recent payslip you will probably find it has already been deducted when calculating your taxable pay i.e. monthly salary £4000 less pension contribution of £200 leaves taxable salary of £3800.

Private pension usually has basic rate tax relief added by the pension provider so a £2000 payment is treated as a gross payment of £2500. This amount increases the amount of 20% tax you can pay which in turn can reduce the amount of 40% tax you pay.

I don't understand I don't have any other income although I have some bonds that go up ~£1k or £2k each year.. You seem to be contradicting yourself!

Not being involved with salary sacrifice but does that not simply reduce your taxable salary?

A good starting point would be to understand what you do and don't need to tell HMRC about before contacting them. This board has plenty of threads from people who have got in a right pickle by confusing themselves and HMRC by involving things the shouldn't have ever mentioned.

Are you completing a tax return for 2016:17?

If claimable the private pension relief can probably be sorted through a phone call. If you aren't filing a tax return for 2016:17 you will need to tell HMRC the actual payment for 2016:17 along with an estimate for the current tax year however you may find your taxable salary is less than you originally thought.

Your P60 for last year would be worth a look to see what you did actually earn for tax purposes.

MetManMark

Thank you both for your input. Much appreciated.

I filled in a tax return for 16/17 as I still had my old house and had some rental income to declare.

You are right - I have kind of contradicted myself in that I stated that I didn't have any additional earnings but then said that I have some bonds that yield income. What I was trying to say was that I don't have income from a second job or a rental property etc.

I have had a quick look for my latest P60 but can't find it

I have found my payslip for March 2017 though. Some info below:

Taxable pay: £41,382.03
Gross pay: £44,243.55

This is useful as it highlights that I have some tax deductions built in which is what I expected. I am a little confused about what has been deducted though.

Child care tax free: 12 monthly payments of £243 (ie £2,916)
Employee's pension contributions: £2,371.20

The difference between my taxable pay and my gross pay is £2,861.52 so it is not clear to me what has been deducted - my pension or my child care tax deductions.

Any ideas on this?

Thanks in advance.
Mark

Dazed_and_confused

Could you post all the details from the March payslip?

BoGoF

Was the child care for the full 12 months in 16/17?

MetManMark

OK - thanks for the replies. I have worked through the question regarding my payslip (in lieu of not finding my P60!). The issue was that I was paid an allowance that i thought wasn't taxable is actually taxable.

So my situation is that my taxable pay is near the 40% bracket - potentially over. If I end up paying 40% tax how do I claim the extra back on my pension? My private pension provider is currently assuming that I pay tax at 20%. Do i need to tell my pension provider or HMRC. If the latter how do I go about doing this? Completing a Self assessment or by some other means?

Thanks in advance
Mark

BoGoF

If your March 17 payslip you quoted from is your final payslip then your P60 figure should be identical (you could log into your personal tax account to check) then your taxable pay of £41382 means you are not a higher rate taxpayer.

Therefore, unless you have other taxable income no further relief will be due on your private pension contributions.

MetManMark

I understand. I think my taxable income this current financial year will be £46 or £47k which is why I am asking about how to claim the extra relief on my private pension.
Mark

BoGoF

Phone HMRC, they will adjust your tax code for the additional tax relief due.

MetManMark

Hmm - looking at other postings on this forum and also looking on my pension providers website it looks as though I need to reclaim this through a self assessment form. I guess this is reclaimed in the following tax year.
Thanks!
Mark