Salary Sacrifice Calculation - Help Please

Dazed_and_confused

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

Can you confirm which figures need changing (and what to) to allow an accurate estimate?

MrsWenger

Thank you again for your reply Dazed and Confused.

My salary and bonus figures are definitely correct. The car BIK has been calculated on the government website for the new company car I will receive in a few weeks time and the Bupa is how much my company pay for me to be in the scheme during 2019. The figure changes a little for the start of each calendar year when it renews.

The savings interest is an accurate “guesstimate” as I don’t have feedback of the actual amounts from banks yet of course. I believe it will be £993.00 in total.

Please let me know if this is the information required to allow an accurate estimate.

MrsWenger

Apologies for bumping this thread but I would like to ask Dazed and Confused, or anyone else of course, if they would be kind enough to provide feedback on the figures i provided please.

Following Paul’s suggestion in post 16, I did contact the pension administration company to explain what I am trying to achieve but they were not able to help me as they said the question bordered on asking for advice which they cannot provide.

Thanks in advance...

Paul_Herring

Following Paul’s suggestion in post 16, I did contact the pension administration company to explain what I am trying to achieve but they were not able to help me as they said the question bordered on asking for advice which they cannot provide.

I suspect you may have inadvertently phrased it in such a way that they interpreted it as such. Or they're being wilfully obstructive.

"I really want to contribute £X per month (I can provide calculations if you really need them,) but calculating that as a percentage is not something I can (easily) do given the vagaries of how I'm paid. Can you provide me with the percentage I need to do to achieve this, or can I simply give you the number £X and you can take care of the rest."

This "I want to contribute [absolute amount], not [percentage], how do I do that?" request should not come anywhere near the border of advice. They may be reading more into your question than they need to.

MrsWenger

Hi Paul, thanks for you reply, it is very helpful.

I must say that I was not overly impressed with them generally. They told me they could refer me to another subsidiary business of theirs and a financial advisor would assess what I was requesting and quote me to provide it. When I asked for clarification of “reference pay” applying to life assurance as it was not clear on the portal they provide, they gave me a contact in a sister team who then contacted my company payroll team to update me as they are non customer facing.

Paul_Herring

I'm leaning towards "wilfully obstructive" at this point...

zagfles

MrsWenger wrote: »

Apologies for bumping this thread but I would like to ask Dazed and Confused, or anyone else of course, if they would be kind enough to provide feedback on the figures i provided please.

Following Paul’s suggestion in post 16, I did contact the pension administration company to explain what I am trying to achieve but they were not able to help me as they said the question bordered on asking for advice which they cannot provide.

Thanks in advance...

The 40% tax band next tax year starts at taxable income of £50,000. So you need to add up your taxable income/benefits etc like you have above and take off £50,000.

Why is it you're so concerned about being below the 40% tax band? You're not living under the misapprehension that your entire income gets taxed at 40% if you exceed it are you? Or are you affected by any of the cliff edges below?

There never used to be any cliff edge in passing the 40% band, and there still isn't in the core system, so if you exceed the 40% tax band by £1 then you pay 40% tax on £1, ie 40p instead of 20p. However there are a few anomilies:

1) Interest - the govt have overcomplicated it with this daft rule about the personal savings allowance dropping from £1000 to £500 if you're a higher rate taxpayer - and you're classed as a higher rate taxpayer based on your taxable income including interest within the PSA. So there is a bit of a cliff edge there, if your interest is £1000 and your other taxable income is £49,000 then you aren't a higher rate taxpayer and all the interest tax free, but if your other taxable income was £49001 then you are a higher rate payer and you'd only get £500 of your interest tax free, and pay 20% tax on £499 of it and 40% tax on £1 of it - so a £100.20 tax bill for an extra £1 earned!

2) The transferrable marriage allowance is lost completely if you're a higher rate taxpayer

3) Child benefit - however this isn't really a cliff-edge as it's tapered, so if you go slightly into higher rate you'll only lose a small amount.

4) Childcare vouchers etc - entitlement to a lower amount for higher rate taxpayers.

MrsWenger

That would be disappointing Paul. There are 1300 of us in the UK division so I would hope they would consider that to be business worth having.

MrsWenger

Hi Zagfles, thank you for you reply.

I do understand that the 40% applies to income over the limit rather than all of my taxable my income.

I intend to increase my pension contributions significantly so I am keen to work out the point at which I would move to the lower band so I can decide what salary sacrifice to make as I have read a number of articles which suggest this is a beneficial thing to do.

I was hoping to have an accurate estimate to run the figures to determine the impact on my take home pay to make an informed decision about the salary sacrifice amount I commit to.

As you will have seen from my post, I made the calculations and thought £12,000 salary sacrifice would achieve this but Paul offered alternative calculations which suggested a much higher value.

In relation to the cliff edges you listed, my current savings interest is just shy of £1,000 per annum so I get the £500 allowance for that. Options 2,3 and 4 don’t apply to me.

On the government company car tax calculator it gives tax figures for both the 20% and 40% bands based on the benefit in kind value. I assumed it would also be beneficial to be in the 20% tax band in this regard but am I mistaken?

Dazed_and_confused

So based on your updated figures you have two types of income as far as working out your tax liability is concerned,

Non savings non dividend income - the salary, bonus, company benefits etc)
Savings income

Your non savings income is £61,469 and this would be taxed as follows,
£61,469 less Personal Allowance £12,500 = £48,969 income to be taxed
£37,500 x 20% (basic rate)
£11,469 x 40% (higher rate)

Savings income of £993 would be taxed
£500 x 0% (savings nil rate)
£493 x 40% (savings higher rate)

So you are actually paying higher rate tax on £11,962.

But have income of £12,462 within the higher rate tax band.

The tax owed you mentioned has no impact on this whatsoever, it is simply an amount added to the bottom of your tax bill however this may cause a slight complication if you start to contribute to a salary sacrifice pension.

I presume your 2019:20 tax code has an adjustment along the following lines,
Tax owed £200 = tax code deduction £500
(£500 x 40% = £200 extra tax paid)

But if you make yourself a 20% taxpayer then that £500 adjustment will only collect £100 so you will have £100 still to pay off after the 2019:20 tax year is complete.

The correct deduction for a basic rate payer is actually £1000 (x 20% = £200 extra tax).

So your tax code would actually be worse (lower) as a result but that is because your employer would no longer be deducting any 40% tax.

Once your salary sacrifice is sorted the best thing to do would be to contact HMRC and give them an updated (taxable) salary figure for 2019:20 and this will allow them to review your 2019:20 tax code.

Remember salary sacrifice is you officially giving up your salary in return for your employer contributing to a pension.