Adjusted net income

loopauk

Having read numerous posts on here on the topic, but also having read through the Government guidance on it...I'm still confused!

My annual salary is £51,668 and my pension is taken out and paid in to an employer scheme prior to tax (£4,805 - it's 9.3% of gross salary). Since my pension contribution comes out of my gross pay, do I subtract £4,805 * 1.25 (= £6,006) from my gross salary, to calculated my adjusted net income, since the guidance states:

• If you made a contribution to a pension scheme where your pension provider has already given you tax relief at basic rate, take off the ‘grossed-up’ amount - what you paid plus the basic rate of tax. So, for every £1 of pension contribution you made, take £1.25 from your ‘net income’.

Thank you.

Dazed_and_C0nfused

You cannot deduct "net pay" contributions.

By doing so you would be double counting them as your P60 will also represent the taxable pay (net of pension contributions).

But first thing is you need to be 100% clear what method is being used to contribute.

Relief at source

Net pay
Salary sacrifice

loopauk

My pension scheme is net pay - it's taken from my gross salary, before I pay income tax.
Based on the government guidance at gov.uk/guidance/adjusted-net-income, why would I not take off an amount outlined in step 3 (as per my above post), given I have already received tax relief on it?
Thanks.

Dazed_and_C0nfused

Because it is already reflected on your P60.

Your taxable pay should be just £46,863, you cannot deduct it again. 

You are not entitled to any "relief at source" (the extra 25%) as it is a net pay scheme so that section is of no relevance to you.

loopauk

My taxable pay would be £46,863 if I didn't pay in to a childcare voucher scheme - I'll be leaving it shortly and I wanted to know what the impact would be on tax free childcare etc. so omitted this info. And having checked my P60, it is already be reflected on there as you say (a smaller amount due to childcare vouchers).

So step 1 asks for my taxable income, and says to include "money you earn from employment". I'd interpreted this line as my gross salary (since I don't have any other source of income/benefits etc.). Is this incorrect? However, in step 1 it also states I should take off any tax reliefs such as "payments made gross to pension schemes - those that have been made without tax relief". Yet my pension scheme states "members will receive tax relief on their pension contributions up to a certain amount" hence why I didn't deduct my pension contribution to arrive at £46,863. Hence why I believed step 3 was relevant to me.

sheramber

 As your gross income is £51, 668  how did you arrive at £48863 if you did not deduct your pension payments.

It is £46863 because your pension payments have been  paid gross and deducted from your gross income  before your tax was calculated. Hence your P60 figure in £46863.  You get the tax relief automatically if your:

• employer takes workplace pension contributions out of your pay before deducting Income Tax

Before the pension payments are deducted your gross salary is £51,668.

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

Tax relief

You can get tax relief on private pension contributions worth up to 100% of your annual earnings.

You get the tax relief automatically if your:

• employer takes workplace pension contributions out of your pay before deducting Income Tax
• rate of Income Tax is 20% - your pension provider will claim it as tax relief and add it to your pension pot (‘relief at source’)