Tax: personal allowance and pension contribution through salary scrifice

IamWood

Dear all,

I'm a bit confused with my tax code this year, especially with the 'personal allowance'.

Let's say for a salary of 130K, 20% pension contribution through salary sacrifice. What's the personal allowance in the tax year 2022-2023?

A formula would be helpful. Thanks!

Dazed_and_C0nfused

Your salary is usually irrelevant for tax purposes and salary sacrifice pension contributions are employer contributions so they are irrelevant as well.

Your starting point is your taxable pay, which if it's £104,000, and you don't have any other taxable income (unlikely) and don't make any pension contributions or Gift Aid payments would result in a Personal Allowance of £10,570.

You can update your estimated taxable earnings on your Personal Tax Account.

Your Personal Allowance is based on your adjusted net income so remember any other taxable income has to be taken into account.  For example taxable pay of £104,000 plus interest of £500 and dividends of £500 with no pension or Gift Aid contributions = ANI of £105,000 and a Personal Allowance of £10,070.

Dazed_and_C0nfused

The formula is simple, deduct £100,000 from your adjusted net income and then halve what's left.

Deduct that from £12,570 to arrive at your Personal Allowance.  If you end up with a negative value your Personal Allowance is £0.

For example ANI £130,000 - £100,000 = £30,000

£30,000 / 2 = £15,000

£12,570 - £15,000 = -£2,430 so Personal Allowance is £0

IamWood

Thanks, this is helpful.

10,570 = 12,570 - (104,000 - 10,000) /2
10,070 = 12,570 - (104,000 - 10,000) / 2 - (500 + 500) / 2

IamWood

Thank you @Dazed_and_C0nfused

Dazed_and_C0nfused

There is more information about ANI here but for most people it's relatively straightforward with just a few things to consider.

If your taxable pay is £100k or more you will have to compete Self Assessment returns and that will establish the actual ANI/Personal Allowance once the tax year ends.

https://www.gov.uk/guidance/adjusted-net-income