Reduced Personal Allowance

neil5061

Hello all. 

My income is approx 140k. So in order to not lookse my tax free allowance I put 40k into my SIPP. Now looking at the calculation on my self assesment. It is still stating that I have a reduced allowance. My tax bands have changed to account for the SIPP but no mention of getting my personal allowance back.

Am i incorrect in saying I can use my pension to offset this or can it only be offset by expenses?

[Deleted User]

If your adjusted net income before the SIPP was £140000 you only needed to contribute 32000 to the SIPP, grossed up to 40000 by HMRC.

Something has gone wrong however. Does it say by how much your basic rate band has been increased?

Dazed_and_C0nfused

Your Personal Allowance is based on your adjusted net income and (most) pension contributions are taken into account when calculating it.

Remember a relief at source contribution to a SIPP only reduces your adjusted net income but does not reduce your taxable income.  It does ncrease your basic rate tax band though.

Can you provide details of the calculation and where on the return you have entered details of the pension contribution?

Was the £40k what you actually paid or the gross contribution?

neil5061

those numbers arent exact. I have actually put in 30k, hl should be claiming the 20% basic rate to make it 37.5l.

My basic band has increased to 75k (37.5k plus the 37.5k pension)

Dazed_and_C0nfused

Is your Personal Allowance on the Self Assessment calculation c£11,250?

neil5061

This is the output. I have tweaked the numbers to keep it anonymous but the general point stands. 

I added 30k to my SIPP. I am expecting HL to claim another 7.5k. 

Tax calculation

This section provides you with a breakdown of your full calculation. If it says your tax return is 100% complete then you have submitted your return and this is a copy of the information held on your official online Self Assessment tax account with HM Revenue and Customs.

Pay from all employments	£19,080.00
minus allowable expenses	£1,486.00
Total from all employments	£17,594.00
Profit from self-employment	£114,408.00
Profit from UK land and property	£7,636.00
Total income received	£139,638.00

minus Reduced Personal Allowance

£11,431.00

Total income on which tax is due

£128,207.00

How we have worked out your income tax

Your basic rate limit has been increased by £37,500.00 to £75,000.00 for pension payments.

This reduces the amount of income charged to higher rates of tax.

	Amount	Percentage	Total
Pay, pensions, profit etc. (UK rate for England and Northern Ireland)
Basic rate	£75,000.00	x 20%	£15,000.00
Higher rate	£53,207.00	x 40%	£21,282.80
Total income on which tax has been charged			£128,207.00
Income Tax due after allowances and reliefs			£36,282.80
minus Relief for finance costs	£5,175.00	x 20%	£1,035.00
Income Tax due after tax reductions	£35,247.80
Income Tax due	£35,247.80
plus Class 4 National Insurance contributions
	£40,500.00	x 9%	£3,645.00
	£64,408.00	x 2%	£1,288.16
plus Class 2 National Insurance contributions	£109.80
Total Class 2 and Class 4 National Insurance contributions due	£5,042.96
Income Tax, Class 2 and Class 4 National Insurance contributions due			£40,290.76
minus Tax deducted
From all employments, UK pensions and state benefits	£2,615.00
Total tax deducted	£2,615.00
Income Tax, Class 2, and Class 4 National Insurance contributions due			£37,675.76

So I cant understand where the Reduced Personal Allowance£11,431.00 is coming from. (it may be slightly higher as I previously claimed for professional fees. Should this not be >12500

[Deleted User]

It would be 12500 if you had reduced you adjusted net income to 100000. You have reduced it to 102138 which means that you lose 1069 of your personal allowance.

139638 minus 37500 = 102138.

HappyHarry

You have put £37,500 in your Sipp, meaning your total income for personal allowance purposes is £139,638 - £37,500 = £102,138.

You will lose £1 of personal allowance for every £2 of income over £100,000. So you lose £2,138/2 = £1,069 of your personal allowance.

The standard personal allowance of £12,500 less that £1,069 gives you a reduced personal allowance of £11,431.

neil5061

The reason I put in 37500 in the SIPP is because my previous employer had a pension scheme so I did not want to go over the 40k.

In the end I did because I didnt take into account how high the employer contributions were so I have gone over the 40k, luckily I can carry forward the excess.

The pension was deducted at source so in theory the employee contribution would be the same as the "excluded income" but what about the employer contribution. Does this factor into the calculations?

[Deleted User]

neil5061 said:

The reason I put in 37500 in the SIPP is because my previous employer had a pension scheme so I did not want to go over the 40k.

In the end I did because I didnt take into account how high the employer contributions were so I have gone over the 40k, luckily I can carry forward the excess.

The pension was deducted at source so in theory the employee contribution would be the same as the "excluded income" but what about the employer contribution. Does this factor into the calculations?

Not into the tax calculation - No.

neil5061

Ok thanks guys. You'll all helped a load!