What to include in income? increase pension conts to avoid paying 40% tax and HICBC

user1168934

I am a higher rate tax payer. My wife gets child benefit for two kids and I have to pay back part of the child benefit as High Income Child Benefit Charge. I am trying to increase my pensions contributions so I don't have to pay 40% tax and HICBC.

My understanding is that if I reduce my income(s) to £50,000 than I will only be paying 20% tax and since it is below 50,100 there will be no pay back for the HICBC. Is this correct?

My employer offers salary sacrifice. The aim is to calculate the extra amount I need to contribute to come under the limit and then ask my employer to pay it as salary sacrifice over the next 6 months of this tax year.

I get the following incomes/benefits - what will count as income for this purpose? i.e. what do I add together to get a final figure which when reduced to 50K will serve the purpose?

1. Salary (after salary sacrifice)
2. Bonus each year
3. Car allowance (taxed)
4. Medical Insurance (benefit in kind)
5. Interest from savings account (non-ISA, less than £500 a year)

Kindly help.

xylophone

Had you tried this calculator

https://www.gov.uk/child-benefit-tax-calculator/main

unholyangel

user1168934 wrote: »

I get the following incomes/benefits - what will count as income for this purpose? i.e. what do I add together to get a final figure which when reduced to 50K will serve the purpose?

1. Salary (after salary sacrifice)
2. Bonus each year
3. Car allowance (taxed)
4. Medical Insurance (benefit in kind)
5. Interest from savings account (non-ISA, less than £500 a year)

Kindly help.

HICBC liability is determined by your adjusted net income.

That is taxable income (which is all of your taxable income, not just salary or earnings - so savings interest is included as are others) plus benefits (such as company car and medical insurance - anything declared on a p11d pretty much) and then minus reliefs (such as gift aid or pension payments taken after tax). End result is your adjusted net income.

For the avoidance of doubt, taxable doesn't mean there is tax to pay on it. So the interest would still be included even if covered by the personal savings allowance.

cloud_dog

OP, in case you aren't aware, with salary sacrifice the sacrificed money is never attributed against you and so is not liable for tax or NI and reduces your actual 'salary' reported to HMRC. My medical payment also falls under SS, you may want to check.

I was in a similar position to yourself and added it all up and increased my SS pension contribution so I was just below the £50k reported income level.

user1168934

cloud_dog wrote: »

OP, in case you aren't aware, with salary sacrifice the sacrificed money is never attributed against you and so is not liable for tax or NI and reduces your actual 'salary' reported to HMRC. My medical payment also falls under SS, you may want to check.

I was in a similar position to yourself and added it all up and increased my SS pension contribution so I was just below the £50k reported income level.

Thanks, this is exactly what I am trying to do.
My medical insurance or travelling allowance do not fall under SS.

I calculated the adjusted income and came up with a number but it seemed quite high something like 28% for the next 6 months remaining in the tax year so I thought I'll check whether I am doing anything wrong. The matter gets a bit more complicated because the medical insurance is not aligned with the tax year, so the total premium is a combination of amounts from two tax years. It would be difficult to get the amount exactly right - I might over pay on pensions or tax slightly. Seems like I will just have to take the plunge and start somewhere otherwise I will keep losing money.

Also, do you have to keep adjusting your pension contributions at the start of each tax year for example because you got a bonus (varying amount)?

cloud_dog

Re the bonus, I suppose it depends how large it is and by how much does it vary, and also how much notice you receive prior to payment.

My bonus is a static percentage of my salary and only varies depending on the amount of profit the company makes.

Other posters have been successful in requesting their HR/payroll to SS the full bonus. Not sure if this would work for you but it would take that out of the equation.

MaxiRobriguez

Just salary sacrifice more to cover any (reasonable) eventuality on bonus.

I'm in a similar situation with an added complication of on-call on top - my take is to salary sacrifice to what I suspect will leave me with a revised gross income of £45,000. That way, if the bonus is bigger, then the tax is avoided, if the bonus is smaller, I've still avoided 30% tax. Win/win.