Cycle To Work effect to Taxable Income

tunde10

Just trying to get some clarification.

I earn £55,000k and pay £4,500 into my Workplace pension.

This bring my Taxable income to £50,500, just £275 in the higher rate bracket.

I also pay £46 per month into my Cycle to Work scheme deducted before Tax. I assume as this is excluded from Taxable pay, it brings me into the lower rate bracket?

Just wanted to confirm as i will make over £1,000 in Savings Interest and do not want to my PSA allowance to be £500.

Will pay the £275 difference in a private pension if i have to. 

Strummer22

I'm sure someone will be along soon to tell you that 'taxable income' is the wrong term and tell you about 'adjusted net income'. I'll let them; we all know what you mean.

First point: what kind of pension is it? If salary sacrifice, you receive the tax relief immediately. If it's the confusingly named 'relief at source' (RAS), you don't in fact get the tax relief at the source (the source being your income). Instead, your pension provider claims the basic rate tax relief and adds it to your contributions. If you are a higher-rate taxpayer, you need to tell HMRC what your contributions are to get the higher-rate relief. 

If your pension is RAS, your pension contribution actually reduces your "taxable pay" (yes I know, you pedants at the back, wrong terminology) by 1.25 times your contribution, which is £5,626. Therefore the amount you pay tax on is already below £50,000.

To answer the cycle scheme question, as this is deducted before tax, then it is excluded from the taxable pay/adjusted net income calculation. Your payslips should state your 'total gross pay' and 'gross for tax' and the second figure be lower than the first by the amount of your cycle scheme contributions.

xylophone

https://www.rossmartin.co.uk/private-client-a-estate-planning/income-losses-claims-reliefs/1448-adjusted-net-income

tunde10

Strummer22 said:

I'm sure someone will be along soon to tell you that 'taxable income' is the wrong term and tell you about 'adjusted net income'. I'll let them; we all know what you mean.

First point: what kind of pension is it? If salary sacrifice, you receive the tax relief immediately. If it's the confusingly named 'relief at source' (RAS), you don't in fact get the tax relief at the source (the source being your income). Instead, your pension provider claims the basic rate tax relief and adds it to your contributions. If you are a higher-rate taxpayer, you need to tell HMRC what your contributions are to get the higher-rate relief. 

If your pension is RAS, your pension contribution actually reduces your "taxable pay" (yes I know, you pedants at the back, wrong terminology) by 1.25 times your contribution, which is £5,626. Therefore the amount you pay tax on is already below £50,000.

To answer the cycle scheme question, as this is deducted before tax, then it is excluded from the taxable pay/adjusted net income calculation. Your payslips should state your 'total gross pay' and 'gross for tax' and the second figure be lower than the first by the amount of your cycle scheme contributions.

Thanks for the explanation. It is relief at source so sounds like I'm okay already. Although my monthly payslip is still currently has a portion of it being taxed at 40%.

chrisbur

Strummer22 said:

I'm sure someone will be along soon to tell you that 'taxable income' is the wrong term and tell you about 'adjusted net income'. I'll let them; we all know what you mean.

First point: what kind of pension is it? If salary sacrifice, you receive the tax relief immediately. If it's the confusingly named 'relief at source' (RAS), you don't in fact get the tax relief at the source (the source being your income). Instead, your pension provider claims the basic rate tax relief and adds it to your contributions. If you are a higher-rate taxpayer, you need to tell HMRC what your contributions are to get the higher-rate relief. 

If your pension is RAS, your pension contribution actually reduces your "taxable pay" (yes I know, you pedants at the back, wrong terminology) by 1.25 times your contribution, which is £5,626. Therefore the amount you pay tax on is already below £50,000.

To answer the cycle scheme question, as this is deducted before tax, then it is excluded from the taxable pay/adjusted net income calculation. Your payslips should state your 'total gross pay' and 'gross for tax' and the second figure be lower than the first by the amount of your cycle scheme contributions.

There is also the net pay arrangement where the pension is deducted from your gross pay and that would also show as a difference between gross pay and taxable gross pay on your payslip.

Strummer22

tunde10 said:

Strummer22 said:

I'm sure someone will be along soon to tell you that 'taxable income' is the wrong term and tell you about 'adjusted net income'. I'll let them; we all know what you mean.

First point: what kind of pension is it? If salary sacrifice, you receive the tax relief immediately. If it's the confusingly named 'relief at source' (RAS), you don't in fact get the tax relief at the source (the source being your income). Instead, your pension provider claims the basic rate tax relief and adds it to your contributions. If you are a higher-rate taxpayer, you need to tell HMRC what your contributions are to get the higher-rate relief. 

If your pension is RAS, your pension contribution actually reduces your "taxable pay" (yes I know, you pedants at the back, wrong terminology) by 1.25 times your contribution, which is £5,626. Therefore the amount you pay tax on is already below £50,000.

To answer the cycle scheme question, as this is deducted before tax, then it is excluded from the taxable pay/adjusted net income calculation. Your payslips should state your 'total gross pay' and 'gross for tax' and the second figure be lower than the first by the amount of your cycle scheme contributions.

Thanks for the explanation. It is relief at source so sounds like I'm okay already. Although my monthly payslip is still currently has a portion of it being taxed at 40%.

Yes, that's because tax is taken off the gross pay (technically the 'gross for tax' figure I mentioned), so would be the same on your payslips regardless of your pension contribution.

As I noted, you can claim the higher rate tax relief by informing HMRC of your RAS contributions. You don't need to do self-assessment to do this - just tell HMRC as per this link: https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief