Huge increase in tax

GoldieGirl2022

Hello from a newbie, I'm really hoping someone can help with this query.

My husband has, for the first time, gone over income of £125k for the tax year 2022/23. His job is highly commissioned and so this is very unusual, however because of this he has now lost his personal allowance and as a consequence paid an additional £500 in tax last month. He is very concerned this is going to be the case every month going forward (I think it will be), and that any bonuses he is paid during the year will also be heavily taxed. 

He is employed, but I know he has to do a self assessment for the year as he went over the threshold, and having input the details I think he will be hit with a £4k tax bill too!! 

Is there anything that can be done in this tax year to reduce how much tax he is paying?
Is it likely that he will actually owe the £4k tax bill or could I have made a mistake? 


I appreciate his earnings last year were really good, but this was an exceptional year and we can't really afford to lose £500 per month off his basic pay. We have an appointment with an accountant in a few weeks to try and get some help but this is causing a lot of anxiety so thought I'd post here to see if anyone can help.

Thanks for reading

GG

Brie

Has he maxed his pension contributions?

GoldieGirl2022

Brie said:

Has he maxed his pension contributions?

No he hasn't. I suggested this as the year end approached but he didn't want to "lock the money away" in case we need it. I think he will do this for the end of this tax year, but imagine it doesn't help for how the basic wages will be taxed

Dazed_and_C0nfused

Unless he has a TARDIS there is very very limited scope for changing the facts for last tax year.

If he has made Gift Aid contributions in the current tax year then these can be carried back to 2022-23.  But this can only be done on the first tax return submitted.  You cannot amend a return to do this.

But it's unlikely to help much in all honesty.

Pension contributions or working less are the main ways of avoiding loss of the Personal Allowance.

Also he should be proactive and check his Personal Tax Account to make sure HMRC's estimate of his expected (taxable) earnings for 2023-24 are ok.  If need be he can amend this and keep his tax code as upto date as possible, minimising any tax which might be paid under Self Assessment.

GoldieGirl2022

Dazed_and_C0nfused said:

Unless he has a TARDIS there is very very limited scope for changing the facts for last tax year.

If he has made Gift Aid contributions in the current tax year then these can be carried back to 2022-23.  But this can only be done on the first tax return submitted.  You cannot amend a return to do this.

But it's unlikely to help much in all honesty.

Pension contributions or working less are the main ways of avoiding loss of the Personal Allowance.

Also he should be proactive and check his Personal Tax Account to make sure HMRC's estimate of his expected (taxable) earnings for 2023-24 are ok.  If need be he can amend this and keep his tax code as upto date as possible, minimising any tax which might be paid under Self Assessment.

Sadly that is what I expected to hear, I kept warning him this could happen but he wouldn't have it.

(I'm still working on my TARDIS)

Thanks
GG

Jeremy535897

The personal allowance begins to be lost at £100,000 adjusted net income. It is fully lost at £125,140. Pension contributions can reduce the tax liability in 2023/24 ad are worth looking at. The only other way to reduce past income (apart from setting back gift aid contributions) is to start a self employed business (or husband and wife trading partnership) and make a loss (by buying items qualifying for capital allowances). The rules are complicated, however.

Albermarle

GoldieGirl2022 said:

Brie said:

Has he maxed his pension contributions?

No he hasn't. I suggested this as the year end approached but he didn't want to "lock the money away" in case we need it. I think he will do this for the end of this tax year, but imagine it doesn't help for how the basic wages will be taxed

You do not mention your ages, but at some point you/he will want to retire. At which point you will be very glad of money 'locked away'. Contributing to a pension is very tax efficient and is normally the best way to save for retirement.

From what you say, it seems that even with high earnings coming in , you are anxious about paying another £4K in tax. This would indicate you are spending most of what you get. To maintain anything like this apparent level of spending after retiring, would mean having to amass a huge pot of money. ( or never retiring ) 
Sorry if I have misunderstood, but it sounds like the planned visit to your accountant is coming at a good time. Although they are usually reluctant to offer specific advice about pensions etc they can hopefully point you in the right direction.

GoldieGirl2022

Albermarle said:

GoldieGirl2022 said:

Brie said:

Has he maxed his pension contributions?

No he hasn't. I suggested this as the year end approached but he didn't want to "lock the money away" in case we need it. I think he will do this for the end of this tax year, but imagine it doesn't help for how the basic wages will be taxed

You do not mention your ages, but at some point you/he will want to retire. At which point you will be very glad of money 'locked away'. Contributing to a pension is very tax efficient and is normally the best way to save for retirement.

From what you say, it seems that even with high earnings coming in , you are anxious about paying another £4K in tax. This would indicate you are spending most of what you get. To maintain anything like this apparent level of spending after retiring, would mean having to amass a huge pot of money. ( or never retiring ) 
Sorry if I have misunderstood, but it sounds like the planned visit to your accountant is coming at a good time. Although they are usually reluctant to offer specific advice about pensions etc they can hopefully point you in the right direction.

Thank you, we are in our 40s and all our money is going towards paying the mortgage off as soon as possible, however I agree with everything you have said. Thank you 

Dazed_and_C0nfused

GoldieGirl2022 said:

Albermarle said:

GoldieGirl2022 said:

Brie said:

Has he maxed his pension contributions?

No he hasn't. I suggested this as the year end approached but he didn't want to "lock the money away" in case we need it. I think he will do this for the end of this tax year, but imagine it doesn't help for how the basic wages will be taxed

You do not mention your ages, but at some point you/he will want to retire. At which point you will be very glad of money 'locked away'. Contributing to a pension is very tax efficient and is normally the best way to save for retirement.

From what you say, it seems that even with high earnings coming in , you are anxious about paying another £4K in tax. This would indicate you are spending most of what you get. To maintain anything like this apparent level of spending after retiring, would mean having to amass a huge pot of money. ( or never retiring ) 
Sorry if I have misunderstood, but it sounds like the planned visit to your accountant is coming at a good time. Although they are usually reluctant to offer specific advice about pensions etc they can hopefully point you in the right direction.

Thank you, we are in our 40s and all our money is going towards paying the mortgage off as soon as possible, however I agree with everything you have said. Thank you 

That tends to be a good choice for peace of mind but a poor choice financially.

As he has an effective tax rate of 60% for some of his income pension contributions are very tax efficient.

Albermarle

GoldieGirl2022 said:

Albermarle said:

GoldieGirl2022 said:

Brie said:

Has he maxed his pension contributions?

No he hasn't. I suggested this as the year end approached but he didn't want to "lock the money away" in case we need it. I think he will do this for the end of this tax year, but imagine it doesn't help for how the basic wages will be taxed

You do not mention your ages, but at some point you/he will want to retire. At which point you will be very glad of money 'locked away'. Contributing to a pension is very tax efficient and is normally the best way to save for retirement.

From what you say, it seems that even with high earnings coming in , you are anxious about paying another £4K in tax. This would indicate you are spending most of what you get. To maintain anything like this apparent level of spending after retiring, would mean having to amass a huge pot of money. ( or never retiring ) 
Sorry if I have misunderstood, but it sounds like the planned visit to your accountant is coming at a good time. Although they are usually reluctant to offer specific advice about pensions etc they can hopefully point you in the right direction.

Thank you, we are in our 40s and all our money is going towards paying the mortgage off as soon as possible, however I agree with everything you have said. Thank you 

Many new posters come on to the Savings and Investments and Pension forums, asking ' should I overpay my mortgage, or should I pay more into my pension?'

The answers depend to some extent on personal circumstances, personal preferences and what mortgage deal is in place.
Normally though the conclusion is to do some of both. However the high tax level he is paying would normally swing it more in favour of the pension.

Pennywise

Albermarle said:

Sorry if I have misunderstood, but it sounds like the planned visit to your accountant is coming at a good time. Although they are usually reluctant to offer specific advice about pensions etc they can hopefully point you in the right direction.

It's not really "reluctance", pensions advice is regulated financial advice and it's the job of an independent financial advisor to give such advice.  Most accountants won't be regulated by the FCA as independent financial advisors.  Two completely different professions.  I'd expect an accountant's "advice" in relation to pensions to be little more than telling you the tax effects of investing into a pension - they're simply not authorised to advise whether it's a good idea or not, nor which type of pension scheme/fund to invest in.  Other than some tax calculations and illustrations of paying different amounts into a pension scheme, that's about all you'll get from an accountant because it's all they're allowed to say.  They certainly won't be able to advise whether you'd be best paying off your mortgage or paying into a pension - again, they "may" be able to crunch the numbers and give you an illustration, but that's it.