Question regarding £100k earnings threshold

stormCat99

Hi,

I'm hoping some wise people on here can advise me. I have realised that I may have exceeded the £100k earning limit without realising it (stupid I know), as per 

https://www.gov.uk/income-tax-rates/income-over-100000#:~:text=over £100,000-,Income over £100,000,a Self Assessment tax return.

My salary is £81128. I also have a car allowance of £7760. So a total of £88,888.

However, I have just received a bonus of £15k, taking my total earnings to £104264.54 (taken from my P60 which I received today).

Where I have gone wrong, is that I didn't realise that my car allowance counted towards my £100k earnings limit. So I had thought I was safely under the £100k, but I have realised this is not correct, and that my car allowance seems to be included within that limit.

I have 2 questions I was hoping for help with:

1. Each month I have been contributing into my company pension, I assume that these regular contributions although are of course not taxed, still count towards my £100k earnings limit?

2. Assuming I'm right regarding point 1, is it possible for me to do a one-off lump sum payment into my pension of £4264.54, to bring my earnings back down to the £100k? If so, how do I go about ensuring HMRC correctly recalculate?

I'm sorry if these are stupid questions. I'm very savvy with all other financial things, but with tax I have only ever had to check my tax code annually, and have never needed to understand things any further.

Many thanks.

Dazed_and_C0nfused

1.  You need to check what method was used to contribute as they all work differently.  The common ones are net pay or relief at source.  Or possibly salary sacrifice.

2.  It's not taxable income which determines your Personal Allowance, you need to check your adjusted net income.  So things like interest (not from an ISA) or dividends all count even if they are taxed at 0%.

If your taxable income exceeds £100k you will be required to complete a Self Assessment return and any tax relief due on the pension payments will be given via your tax return.

stormCat99

My pension contributions are via net pay, with the taxed element reappearing inside my pension.

I have no savings interest, we use an offset mortgage so all our savings are used to save on mortgage interest. 

So am I right in thinking if I do the one off £4k contribution it'll bring me back under £100k?

Many thanks. 

Dazed_and_C0nfused

You can't bring your taxable income to under £100k so will definitely need to complete a Self Assessment return.

But if your total taxable income is

 £104264.54 (taken from my P60 which I received today).

Then you need to pay £3411.20 into a "relief at source" pension (SIPP, personal pension or employers scheme if they allow personal contributions) to bring your adjusted net income down to £100k.

The £3,411.20 will have £852.80 in basic rate tax relief added making a gross contribution of £4,264.  

That will reduce your adjusted net income to £100,000 and mean you keep your full Personal Allowance.

stormCat99

That's really helpful, thank you for taking the time to reply. I didn't realise that it had to be a non net-pay type of pension. I will look at opening up a SIPP in that case. 

The good thing about this is that it's made me decide that I'm going to study pensions and tax a little more in detail, so that I can ensure I'm well-informed to make the right decisions moving forwards.

Thanks again.

Dazed_and_C0nfused

You may be able to pay extra net pay contributions via your employer but the time scale to do that is very limited now for 2021:22