Salary to date exceeds £100k - ways to reduce tax

jaideep211

Hi All

 

Last year I moved to a new role with higher pay (>£100k). With plans to contribute significantly to workplace pension I had updated HMRC that I would make <£100k in order to retain my full personal tax allowance of £12,500.

 However, due to oversight I have already gone slightly above £100k as of Jan 15, 2024. In the current tax year there are 2 more monthly salary payments (Feb 15 and Mar 15) and the annual bonus payment (Mar 30) expected. 

1. In order to reduce my overall tax burden, I was thinking of 100% of my 2 upcoming salary payments and bonus payment into workplace pension (I will remain within annual pension allowance since during the first few months of probation in the job, my workplace pension contribution was less).
2. Also, for the amount already exceeded in my salary above £100k up until Jan 15 , I was thinking of contributing to private pension in order to bring down my salary below £100k.

I would appreciate your thoughts if the above makes sense. This is the first time I am dealing with this situation so very unsure.

Specifically regarding point 2 above, my understanding is that given my salary has exceeded £100k already by Jan 15, HMRC would reduce my tax allowance. However, I was thinking if I could claim refund upon filing my return citing extra payment to my private pension.

Any thoughts would be much appreciated.

Thanks..!

Dazed_and_C0nfused

HMRC would only change your tax code if there was something which prompted a review and I don't think your employer filing normal pay details is something that does that.

Ultimately your tax code is only ever provisional, the final position will be reviewed after the end of the tax year, either by HMRC or by you completing a tax return.

Which method is used to get money into your pension (it makes a difference to how all this works)?

Net pay
Relief at source
Salary sacrifice 

Grumpy_chap

jaideep211 said:

Hi All

 

Last year I moved to a new role with higher pay (>£100k). With plans to contribute significantly to workplace pension I had updated HMRC that I would make <£100k in order to retain my full personal tax allowance of £12,500.

 However, due to oversight I have already gone slightly above £100k as of Jan 15, 2024. In the current tax year there are 2 more monthly salary payments (Feb 15 and Mar 15) and the annual bonus payment (Mar 30) expected. 

1. In order to reduce my overall tax burden, I was thinking of 100% of my 2 upcoming salary payments and bonus payment into workplace pension (I will remain within annual pension allowance since during the first few months of probation in the job, my workplace pension contribution was less).
2. Also, for the amount already exceeded in my salary above £100k up until Jan 15 , I was thinking of contributing to private pension in order to bring down my salary below £100k.

I would appreciate your thoughts if the above makes sense. This is the first time I am dealing with this situation so very unsure.

Specifically regarding point 2 above, my understanding is that given my salary has exceeded £100k already by Jan 15, HMRC would reduce my tax allowance. However, I was thinking if I could claim refund upon filing my return citing extra payment to my private pension.

Any thoughts would be much appreciated.

Thanks..!

For option one, your employer will likely restrict the amount you can contribute via payroll to whatever is above NMW.  You may need to make additional manual contributions (which you need anyway for the second action).  

The important thing is to consider total income, not just your salary.  Are there other sources of income to consider (e.g. interest)?  Also, consider any items that will have reduced your ANI, for example Gift Aid donations.

jaideep211

Dazed_and_C0nfused said:

HMRC would only change your tax code if there was something which prompted a review and I don't think your employer filing normal pay details is something that does that.

Ultimately your tax code is only ever provisional, the final position will be reviewed after the end of the tax year, either by HMRC or by you completing a tax return.

Which method is used to get money into your pension (it makes a difference to how all this works)?

Net pay
Relief at source
Salary sacrifice 

Relief at Source

jaideep211

Grumpy_chap said:

jaideep211 said:

Hi All

 

Last year I moved to a new role with higher pay (>£100k). With plans to contribute significantly to workplace pension I had updated HMRC that I would make <£100k in order to retain my full personal tax allowance of £12,500.

 However, due to oversight I have already gone slightly above £100k as of Jan 15, 2024. In the current tax year there are 2 more monthly salary payments (Feb 15 and Mar 15) and the annual bonus payment (Mar 30) expected. 

1. In order to reduce my overall tax burden, I was thinking of 100% of my 2 upcoming salary payments and bonus payment into workplace pension (I will remain within annual pension allowance since during the first few months of probation in the job, my workplace pension contribution was less).
2. Also, for the amount already exceeded in my salary above £100k up until Jan 15 , I was thinking of contributing to private pension in order to bring down my salary below £100k.

I would appreciate your thoughts if the above makes sense. This is the first time I am dealing with this situation so very unsure.

Specifically regarding point 2 above, my understanding is that given my salary has exceeded £100k already by Jan 15, HMRC would reduce my tax allowance. However, I was thinking if I could claim refund upon filing my return citing extra payment to my private pension.

Any thoughts would be much appreciated.

Thanks..!

For option one, your employer will likely restrict the amount you can contribute via payroll to whatever is above NMW.  You may need to make additional manual contributions (which you need anyway for the second action).  

The important thing is to consider total income, not just your salary.  Are there other sources of income to consider (e.g. interest)?  Also, consider any items that will have reduced your ANI, for example Gift Aid donations.

Thanks. Am I therefore, correct to believe that I can maximize (allowable above NWW) my workplace pension contributions for the remainder of the tax year and then use the net pay to make contribution to private pension and subsequently file a return to claim relief. I do not have any other source of income. 

Dazed_and_C0nfused

jaideep211 said:

Dazed_and_C0nfused said:

HMRC would only change your tax code if there was something which prompted a review and I don't think your employer filing normal pay details is something that does that.

Ultimately your tax code is only ever provisional, the final position will be reviewed after the end of the tax year, either by HMRC or by you completing a tax return.

Which method is used to get money into your pension (it makes a difference to how all this works)?

Net pay
Relief at source
Salary sacrifice 

Relief at Source

Those contributions don't reduce your taxable earnings.

But they do reduce your adjusted net income and it's ANI which determines your Personal Allowance.

They also increase your basic rate band (by the amount of the gross contribution).

jaideep211

Dazed_and_C0nfused said:

jaideep211 said:

Dazed_and_C0nfused said:

HMRC would only change your tax code if there was something which prompted a review and I don't think your employer filing normal pay details is something that does that.

Ultimately your tax code is only ever provisional, the final position will be reviewed after the end of the tax year, either by HMRC or by you completing a tax return.

Which method is used to get money into your pension (it makes a difference to how all this works)?

Net pay
Relief at source
Salary sacrifice 

Relief at Source

Those contributions don't reduce your taxable earnings.

But they do reduce your adjusted net income and it's ANI which determines your Personal Allowance.

They also increase your basic rate band (by the amount of the gross contribution).

Many thanks for the reply. 

And I apologize. I got mixed up between Relief at Source and Net Pay. From my Gross monthly salary, my employer deducts pension contribution and I am taxed on the balance. Therefore, I am on Net pay. Would your answer differ now?  

ro1892

jaideep211 said:

 

1. In order to reduce my overall tax burden, I was thinking of 100% of my 2 upcoming salary payments and bonus payment into workplace pension (I will remain within annual pension allowance since during the first few months of probation in the job, my workplace pension contribution was less).

I would check with your employer/pension provider whether you can do that. I know that my employer does not let you contribute to your pension anything that would take you below the minimum wage for the month. I'm not sure whether this a legal thing (so applies to everyone) or a specific rule set by employer/pension.