Just upped SS contributions, question!

Hi,

I'm a higher rate tax payer and I've just upped my SS pension contributions which should mean I'm now just below the higher rate tax threshold. I just wanted to confirm if this change (no longer paying higher rate tax) is something that will sort itself out with the tax man or should I let them know?

Also, can I also confirm that I should now get the basic rate tax payers £1000 tax free interest allowance as opposed to the £500 allowance I was getting previously?

Many thanks!
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Comments

  • penners324
    penners324 Posts: 2,701 Forumite
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    Hmrc with find out from the rti submission sent by your employer.
  • Hmrc with find out from the rti submission sent by your employer.
    Ok cool I assumed that was the case but wasn't sure if it was something they took a couple of months to catch on to :smile:
  • Steve_666_
    Steve_666_ Posts: 229 Forumite
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    edited 5 January at 4:10PM
    have you taken into account the previous 9 months, when your SS was lower?
  • Nevergonnaretire
    Nevergonnaretire Posts: 57 Forumite
    First Anniversary First Post
    edited 5 January at 4:37PM
    have you taken into account the previous 9 months, when your SS was lower?
    Ah I have not!

    How does that work though, tax will be less as my salary will be less, but wont be correct (as in basic rate tax bracket) until the new tax year?
  • Steve_666_
    Steve_666_ Posts: 229 Forumite
    First Anniversary First Post Name Dropper
    have you taken into account the previous 9 months, when your SS was lower?
    Ah I have not!

    How does that work though, tax will be less as my salary will be less, but wont be correct (as in basic rate tax bracket) until the new tax year?
    look at you Dec payslip for gross income(taxable pay YTD), add what you expect to pay over the next 3 months, plus any other income and see if its below the 40% threshold. IF not, then maybe add a bit more SS over the next 3 months, single contribution to a SIPP...
  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 13,347 Forumite
    First Anniversary First Post Name Dropper
    Hi,

    I'm a higher rate tax payer and I've just upped my SS pension contributions which should mean I'm now just below the higher rate tax threshold. I just wanted to confirm if this change (no longer paying higher rate tax) is something that will sort itself out with the tax man or should I let them know?

    Also, can I also confirm that I should now get the basic rate tax payers £1000 tax free interest allowance as opposed to the £500 allowance I was getting previously?

    Many thanks!

    You don't need to tell HMRC about salary sacrifice pension contributions as you aren't paying into the pension, you are agreeing to a reduced salary in return for additional employer contributions and you don't get any pension tax relief on employer contributions.

    You benefit by not having the income to pay tax (or NI) on in the first place.

    ISA's are tax free, non ISA interest will all be taxed but the first £500 or £1,000 will be taxed at 0%.  You need to consider all your taxable income when determining which is applicable to you.

  • Thanks for the replies, not sure what I was thinking with my original question as clearly just increasing my contributions for the last couple of months of the tax year is not going to affect this years tax position as my new contributions won’t be enough to do that. I’ll know where I am from April however so it’s all good, roll on retirement 😉
  • jamesd
    jamesd Posts: 26,103 Forumite
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    edited 8 January at 11:45AM
    Yes, if salary sacrifice takes you into the basic rate range you do get the £1,000 interest allowance.

    It's also worth knowing that salary sacrifice for higher rate tax payers works best if you concentrate it into as many months at minimum wage as are required to reach your target for the year. This is because NI is calculated for each pay period, not annually. It means that a large chunk of your sacrifice will get 12% NI saving instead of 2% (10% from 6 Jan).

    Hopefully your employer will let you change mid year between high and low to benefit from this. Mine did.

    If you log in to the HMRC site they will tell you the pay your employer reports each month and which they use to calculate your tax code. You can also tell them what you expect for the year, handy if varying sacrifice means early months are misleading.
  • jamesd said:
    Yes, if salary sacrifice takes you into the basic rate range you do get the £1,000 interest allowance.

    It's also worth knowing that salary sacrifice for higher rate tax payers works best if you concentrate it into as many months at minimum wage as are required to reach your target for the year. This is because NI is calculated for each pay period, not annually. It means that a large chunk of your sacrifice will get 12% NI saving instead of 2%.

    Hopefully your employer will let you change mid year between high and low to benefit from this. Mine did.

    If you log in to the HMRC site they will tell you the pay your employer reports each month and which they use to calculate your tax code. You can also tell them what you expect for the year, handy if varying sacrifice means early months are misleading.

    Thanks for this I'll take a look!
  • leosayer
    leosayer Posts: 362 Forumite
    First Post First Anniversary Combo Breaker
    jamesd said:
    Yes, if salary sacrifice takes you into the basic rate range you do get the £1,000 interest allowance.

    It's also worth knowing that salary sacrifice for higher rate tax payers works best if you concentrate it into as many months at minimum wage as are required to reach your target for the year. This is because NI is calculated for each pay period, not annually. It means that a large chunk of your sacrifice will get 12% NI saving instead of 2%.

    Hopefully your employer will let you change mid year between high and low to benefit from this. Mine did.

    If you log in to the HMRC site they will tell you the pay your employer reports each month and which they use to calculate your tax code. You can also tell them what you expect for the year, handy if varying sacrifice means early months are misleading.
    Agreed and this is what I do to bring my taxable income down to around £50k ie. sacrifice around 75% of my salary for a few months and then back to normal 3% for the remaining months to continue to receive matched contributions.

    To the OP, assuming your employer allows it then could sacrifice a higher amount for the remaining months of this tax year but you can't do 100% because that would take your earnings below minimum wage - your HR should be able to advise the maximum you can contribute.
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