Tax implications of earning slightly over £100k

JacJac1

So, it looks as though my income this financial year 23/24 is likely to tip over the £100k mark for the first time - salary, car allowance, bonus, and savings interest will be about £105-£110k in total. I currently contribute 4% of my base salary to the company DC pension via salary sacrifice, but I'm looking for advice about the most efficient way of managing this please, and making sure I understand the rules.

Looking at the HMRC guidance, the £100k needs to be adjusted net income, so in my case would be £105k minus my pension contributions (£3,400) - is that right? In theory, does this mean I could put £2k extra into my pension pot, and that would keep me under £100k? Also would that mean I avoid the hassle of having to complete a tax return?

I know 4% isn't a big pension contribution but I'm saving for a house and 4% is the minimum for my employer max contribution of 12%.

Thanks.

Dazed_and_C0nfused

No, you are overcomplicating things.

You aren't actually contributing to a pension.  You are agreeing to a reduced salary in return for your employer contributing to your pension.

Employer contributions don't get pension tax relief added and cannot be deducted when calculating your adjusted net income.

The starting point for adjusted net income is your taxable earnings (P60 pay figure).

Relief at source pension contributions can be deducted for adjusted net income purposes.

A tax return is required when your taxable income is £100k or more.  Having adjusted net income less than £100k doesn't alter that.

JacJac1

Thank you for responding. So basically I'd need to put at least £5k of my bonus towards my pension (or increase my monthly contribution) to keep anything over £100k from the 60%ish rate. Unfortuntely there's no avoiding a tax return, got it.

Dazed_and_C0nfused

What do you expect the total of your taxable pay + (non ISA) interest + any other taxable income to be in 2023:24?

JacJac1

That would be the £105k, all of that is taxable. Maxxed my new ISA allowance this morning.

Dazed_and_C0nfused

JacJac1 said:

That would be the £105k, all of that is taxable. Maxxed my new ISA allowance this morning.

In that case the simplest (and most tax efficient) option would be to simply agree to sacrifice another £5,001 of your salary.

That way you get an extra £5,001 added to your pension (as an employer contribution).  So avoiding paying tax and NI on the £5,001.

And your taxable income will only be £99,999 so your adjusted net income will be a maximum of £99,999 meaning you retain your full Personal Allowance.

In reality you might want to allow a bit more tolerance than £1 in case of unexpected surprises which would tip your taxable income upto £100k.

All of the above is based on your answer to the question below being correct.

What do you expect the total of your taxable pay + (non ISA) interest + any other taxable income to be in 2023:24?

That would be the £105k

JacJac1

Understood, and thank you once again. Bonuses are paid in March-ish each year (definitely before April), and we have the option to salary sacrifice a portion towards our pension. At that point I'll know roughly what my total taxable income is likely to be so can make the calculation of what I should add to my pension, as an 'employer' contribution. I'll include some leeway and be sure to count savings interest, health insurance paid by my employer, and a small amount of share dividends.

stulish1

Hi all i am in a similar situation for the first time

15000 (Pension) + 88000 (pay) + 6000 (bonus) = 109000 total before tax

i pay 9% into the company pension scheme (7920) and also 55 per month to charity through salary sacrifice (660)

so my total is 109000-7920-660 = 100420 before tax

i also pay for dental through salary sacrifice at 40 per month (480) is this also taken into account for 'adjusted net income' and thus reduce my total pay to 99940? or do i need to increase pension contributions slightly?

also if my 'adjusted net income' is below 100k do i still need to complete self assessment?

Thanks

Dazed_and_C0nfused

Do your payslips not show if the £40/month is reducing your taxable income?

stulish1

Dazed_and_C0nfused said:

Do your payslips not show if the £40/month is reducing your taxable income?

Hi yes the pay slips have gross pay reduced by the dental.

Albermarle

JacJac1 said:

Understood, and thank you once again. Bonuses are paid in March-ish each year (definitely before April), and we have the option to salary sacrifice a portion towards our pension. At that point I'll know roughly what my total taxable income is likely to be so can make the calculation of what I should add to my pension, as an 'employer' contribution. I'll include some leeway and be sure to count savings interest, health insurance paid by my employer, and a small amount of share dividends.

Plus your future self will be happy that  a more realistic % is going into your pension, and that £5K extra going in has effectively only cost you £2,900. ( not including any benefit for getting under £100K)