Salary Sacrifice Calculation - Help Please

MrsWenger

Many thanks to everyone for your replies and I am sorry I have not been able to post sooner.

I was already aware of the changed to both the personal allowance and tax bands for 2019/2020 but I can see that the values has generated discussions in previous posts. Personally, I would refer to this as knowing that I will pay 40% tax on relevant income over £50,000 in the coming year as I am based in England.

Dazed and confused, thank you for the information in post 2. I will look to calculate this manually. I am indeed looking to start this for 2019/20.

Only yesterday my employer announced they will offer enhanced contributions to our pension which is good news.

I also received a notification from HMRC yesterday which contains several lines of information that is going to take some deciphering and it relates to 2018/19 taxation.

Finally, my company car will be changed in April too so there are some unknown variables to work with.

One other question please. Am I correct to say that in relation to the car I just add the benefit in kind figure to my calculation?

Dazed_and_confused

Yes, your benefit in kind is just extra taxable income.

MrsWenger

Dazed_and_confused wrote: »

Yes, your benefit in kind is just extra taxable income.

Thank you for confirming this Dazed and confused.

MrsWenger

Hi everyone.

I have been collating my details and would like to ask if I am on the right lines please. Here are my figures -

Salary £49,003.00
Bonus £ 5,000.00
Bupa £ 622.00
Car BIK £ 6,844.00
Interest £ 500.00
Total £61,969.00

The bonus does not count for pension calculations. Am I correct to say that committing £12,000 (£1000 per month by salary sacrifice) will achieve my aim of moving out of the 40% tax band or have I overlooked anything please?

If it helps, my tax code for 2019/20 is 474L and I live in England. The £500 interest is based on the fact I predict to receive a few pounds short of £1000 interest in total. I know £500 is the interest figure for the 40% tax band, am I correct to include just £500 for this calculation or do I need to add the £1000?

Finally, I need to tell our pension administration company a percentage I wish to pay in so I have assumed that I calculate the £12,000 as a percentage of my base salary. Is that the correct methodology please?

Paul_Herring

Personal guestimates only, you may want to wait for others to pick this over....


Salary+bonus+bupa*+car* = £61,469.

20% band starts at (based on 474L) £4,740
40% band starts at (based on 474L+£37,500) : £42,240

Difference between total salary and bottom of 40% range (£61K-£42k): £19,229

That, I think, is the amount you'd need to sacrifice (£1602±pence/month) to get below the 40% limit.

Having dropped down to below 40%, your savings allowance (presuming that's where the interest is coming from) should then increase from £500 back to £1000. (Your savings allowance is separate from your income tax allowance) Anything above that will need to be added to what needs to be sacrificed.

Finally, I need to tell our pension administration company a percentage I wish to pay in so I have assumed that I calculate the £12,000 as a percentage of my base salary. Is that the correct methodology please?

It will differ from company to company. You should explain to them what you're trying to do, with your calculations, and ask them how to achieve that aim within the requirements they have to work with.


* I'm assuming these are considered salary equivalents.

MrsWenger

Many thanks for your reply Paul.

I added the Bupa and car benefit in kind as they are considered to be taxable income and it was confirmed in earlier posts I should add them to my calculations.

You are correct; the interest is from savings.

I’ll need to consider that figure carefully as it will have quite an impact on my take home pay each month.

Thanks for the advise about discussing options further with the pension administrators.

Dazed_and_confused

Isn't that calculation taxing the company benefits twice though?

They are presumably the main reason your tax code is 474L in the first place but then they are being included in the total income of £61,469.

MrsWenger

Hi Dazed and Confused, thanks for your reply.

You are correct, that is the main reason for my tax code being 474L. A small element is for tax HMRC calculate I owe from a previous year.

I based my calculations on the question I asked in post 12 and the reply you kindly gave in post 13. My apologies if I have misunderstood but I thought I needed to add all of my taxable benefits to my salary and bonus to get the figure I need to work back from? It was this calculation that lead me to think I could pay £12,000 into my pension by salary sacrifice to get below £50,000 but Pauls’s post suggests I was wrong.

Can you suggest to me how I should calculate the taxable income please?

kinger101

MEM62 wrote: »

I didn't realise I needed to be that specific. The term 'taxable income' to me means taxable income, plus the value of any taxable benefits less your personal allowance. Is there any other definition?

It's incorrect terminology. The income is either taxable (e.g., salary, interest, dividends, pensions, most benefits, trading income) or it is not (e.g., lottery winnings).

The personal allowance is the amount of taxable income once can receive without paying tax.

Dazed_and_confused

Well for a start your tax code is completely irrelevant.

This is just a provisional attempt to collect the correct the correct amount of tax during the year. Sometimes it will do that, other times it won't. Personally I would be looking at your (estimated) total income and work out the tax position on that.

You will then see how much you are likely to be paying at 40%.

And that will ensure the tax owed for a previous year doesn't muddy the waters (it is included in your tax code so extra tax is deducted during the year but ultimately has no relevance when determining which tax rates you need to pay).