Contractor to Perm and Tax Code 31T in 21/22

fiisch

Evening all,

Slightly convoluted question about Tax Code 31T that I'm hoping the hive mind can help with:

Background:
- Started the year as a contractor (Inside IR35, paid weekly as PAYE) on tax code 31T.  I was on a day rate, but had I worked 48 weeks I'd have grossed £120k;
- At the very end of October, I left contracting job for a permanent job paying less.  I have remained on tax code 31T;
- I'd guesstimate total earnings for this tax year to be around £102.5k; next year earnings will certainly be back below £100k.

I have no option at this stage to increase my pension contribution (2.5%) before end of the tax year, and going off salary calculator my wages seem to be around £4-500 down on what I was expecting, although this is made slightly more complicated by a couple of BIK taxes (health & travel insurance which looks to be about £200 added on payslip for purposes of calculating tax).

Question:
1.  I understand 31T references the fact that calculations are made in regards to reduction of my personal allowance - is this likely to be based on projected earnings of £120k, or will this adjust for my new salary?  I ask as my take home pay seems down on what salary take-home calculators (including MSE's) suggest (taking £437 less according to MSE calculator), but this difference seems more than the additional tax I would have to pay for being over £100k;

2.  Assuming my final payslip in March shows I've earned £102.5k, how much would I need to pay into a SIPP in order to be below £100k?  Is it as simple as £2.5k, or is it more complicated than that? I understand salary over £100k is effectively taxed at 60%, and I have an 18 month old so tax free childcare voucher scheme would be useful.
(Not sure yet if this will be an option as emergency funds are low currently).

TIA.

Dazed_and_C0nfused

A tax code is just provisional, in your situation the actual tax due will be established when you file your Self Assessment return.

There are a few things you need to remember with relief at source pension contributions to a SIPP or personal pension.  

They don't reduce your taxable income

They do reduce your adjusted net income.  This is what is used to determine your Personal Allowance

The gross contribution increases your basic rate band meaning more tax can be paid at 20% and less at 40%

You pay the net contribution and the pension company, courtesy of HMRC, add 25% to make the gross contribution.  So if you wanted to reduce your adjusted net income by £2,500 you would pay £2,000 which has £500 basic rate tax relief added by the pension company.

Q1.  Tax code 31T could be arrived at for literally thousands of different reasons.  It could well be due to having a reduced Personal Allowance.  Or a reduced Personal Allowance and a multitude of other tax code allowances/reliefs and deductions.  You should be able to see the make up of your tax code on your Personal Tax Account.

Q2.  It isn't that simple.  You need to read up on adjusted net income.  Two things that are easily overlooked are that both taxable interest and dividends form part of your adjusted net income.  So you could have £500 interest taxed at 0% and £2,000 dividends also taxed at 0% adding £2,500 to your adjusted net income and potentially reducing your Personal Allowance by £1,250.