Higher income tax

btcp

So it seems like after a couple of pay increases and bonus I will get a bit more than 100k income from my full time employment this year. I hoped that higher salary means higher net pay, but from what I am reading I understand that income tax % is much higher on that amount. I am quite far from being a finance person, so looking for a simple explanation if I may... Appreciate it may be an ABC for a finance person, so please bare with me

- What exactly counts towards taxable pay and defines my tax code? My understanding is that it is a sum of base salary, bonus, benefits in kind. What about salary sacrifice and pension that employer contributes?
- Can I pay higher pension % through salary sacrifice and reduce taxable income, hence go under 100k a year and stay within a lower income tax %?
- Anything else can help me alleviate higher income tax and get more money net?

Thank you!

Dazed_and_confused

Tax code is irrelevant (although getting the correct one helps avoid owing tax or being owed tax by HMRC).

You need to Google "adjusted net income". Those are the rules which determine your Personal Allowance entitlement (it is losing some of your Personal Allowance which creates an effective tax rate of 60% (or more if Scottish resident for tax purposes)).

btcp

Thanks you for sending me to Google, assuming I’ve already done so and got confused my the amount of materials and a need to spend days trying to understand the details of income tax calculation in my case. I hoped I could get some simple practical advice on the forum. I understand that losing my Personal Allowance creates the high tax rate, the question is what can be done about it to benefit the pay raise. As for now, I see that my pay check is even lower than before the raise. Thank you.

Dazed_and_confused

Pension contributions and charitable payments (gift aided) are two common things which can help.

But you also need to understand what your actual taxable salary is.

You might have a "salary" of say £110k but if you pay 10% into the company pension scheme through a net pay arrangement your taxable salary is only actually £99k. Obviously taxable salary is one element of your adjusted net income.

Flugelhorn

Like you I ended up in the higher rate, however as I had four jobs with variable income the problem was usually only apparent when I did the self assessment. The things that came off the total and hence reduced the amount of income taking the bigger hit were professional subs and expenses, payments into my private pension, superannuation. I didn't do other salary sacrifice

Pennywise

Forget your salary, salary sacrifice, employer pension schemes etc. What really matters is your taxable pay as per payslips and P60 forms as the starting point - then you adjust for things outside the payroll, such as private pensions, charity, etc.

btcp

Dazed_and_confused wrote: »

You might have a "salary" of say £110k but if you pay 10% into the company pension scheme through a net pay arrangement your taxable salary is only actually £99k. Obviously taxable salary is one element of your adjusted net income.

Say salary excluding bonus is £100k pay to pension 8% as a salary sacrifice which leaves me with £92,000. Then I have a bonus say 8k and it brings me back to 100k taxable income right? What about contribution that my employer makes to my pension, do I need to add them to the 100k too? If salary sacrifice pension is a way to to reduce taxable income, then I am trying to figure out how much to increase my contribution and stay at the lower than 100k. Am I on the right track?

I don’t have child benefits or charitable donations. Only health insurance and gym are compensated as in kind benefits.

btcp

Pennywise wrote: »

Forget your salary, salary sacrifice, employer pension schemes etc. What really matters is your taxable pay as per payslips and P60 forms as the starting point - then you adjust for things outside the payroll, such as private pensions, charity, etc.

That’s right, they will calculate it all in P60 for me but this will be after April and I was trying to prepare myself before, as I only can change % of pension contribution once a year.

btcp

Flugelhorn wrote: »

Like you I ended up in the higher rate, however as I had four jobs with variable income the problem was usually only apparent when I did the self assessment. The things that came off the total and hence reduced the amount of income taking the bigger hit were professional subs and expenses, payments into my private pension, superannuation. I didn't do other salary sacrifice

I am on PAYE full time, on,y one job so I suppose I cannot claim professional expenses. Pension seems like the only option for me, unless I am missing something. I am new to this and just started to do my research. New year new finances. Thank you for answering!