Tax on wages

Andrew68

Here is the full monthly Full Breakdown for January (the £172.59 and £431.47 is the company contribution into our works pension for me)

Download payslip PDF

Amount paid (net)	£2,951.46

Total Earnings £3,830.29
AVC Cash	-£1,232.30
AVC Percentage	-£517.77
Basic Salary	£5,752.95
Master Trust Ee	-£172.59

Deductions £878.83
TAX	£600.60
EE NI	£278.23

Employer's Contributions
ER NI	£423.98
AVC Cash	£1,232.30
AVC Percentage	£517.77
Master Trust Ees	£172.59
Master Trust Ers	£431.47

Tax year to date
Gross pay	£41,632.10

Dazed_and_C0nfused

Andrew68 said:

Dazed_and_C0nfused said:

Andrew68 said:

Dazed_and_C0nfused said:

Andrew68 said:

i don’t understand a lot of that or the jargon used.  Sorry. 

The £21,000 is the total annual pension contribution I am making from my wage on an equal monthly basis. £21k /12 months = £1750/ month. 

Which I thought avoided tax upto 40k/year pension contributions (?) 

Unless you can say how the contributions are made it's impossible to give any useful help.

You might not need to do anything.  You might need to contact HMRC with details of your (RAS) pension contributions.

The method used is key to all this.

The method used is through my HR dept in PAYE I contribute £1750/month into our works pension scheme which I though meant i avoided tax on my wages as long as I dont exceed 40k pension contribution in a year ?

Does that answer your question on the method of payment of my pension contributions ?

Unfortunately not as employer schemes could use any one of the three options.

If you are definitely making these contributions that rules our salary sacrifice so you could check your pension account to see if 25% is being added to each contribution (that would be relief at source).

Or check your payslip to see if the pension contributions are deducted before tax is calculated (which would be net pay).  For example salary £6,000 less £1,750 = taxable pay £4,250.  You can also see the impact on your P60's i.e. salary £69k but P60 only shows taxable pay of £48k.

So, my last payslip in January says ; Tax Year to date ; Gross pay ; £41,632.10
My December Payslip stated ; ; Tax Year to date ; Gross pay ; £37,801.81

My gross pay monthly is £5752.95 and I thought i was paying £1750/month which avoided any tax by going into my pension 

Does this information help at all ?

As your gross (taxable?) pay has only increased by £3,831 then that suggests it's a net pay scheme.  

Which means there is nothing for you to do with regard to the pension contributions as you immediately get the maximum possible tax relief.

What you might want to do is update your estimated earnings with HMRC.  £41,632 to month 10 of the tax year is just shy of £50k annual earnings.

Andrew68

Dazed_and_C0nfused said:

Andrew68 said:

Dazed_and_C0nfused said:

Andrew68 said:

Dazed_and_C0nfused said:

Andrew68 said:

i don’t understand a lot of that or the jargon used.  Sorry. 

The £21,000 is the total annual pension contribution I am making from my wage on an equal monthly basis. £21k /12 months = £1750/ month. 

Which I thought avoided tax upto 40k/year pension contributions (?) 

Unless you can say how the contributions are made it's impossible to give any useful help.

You might not need to do anything.  You might need to contact HMRC with details of your (RAS) pension contributions.

The method used is key to all this.

The method used is through my HR dept in PAYE I contribute £1750/month into our works pension scheme which I though meant i avoided tax on my wages as long as I dont exceed 40k pension contribution in a year ?

Does that answer your question on the method of payment of my pension contributions ?

Unfortunately not as employer schemes could use any one of the three options.

If you are definitely making these contributions that rules our salary sacrifice so you could check your pension account to see if 25% is being added to each contribution (that would be relief at source).

Or check your payslip to see if the pension contributions are deducted before tax is calculated (which would be net pay).  For example salary £6,000 less £1,750 = taxable pay £4,250.  You can also see the impact on your P60's i.e. salary £69k but P60 only shows taxable pay of £48k.

So, my last payslip in January says ; Tax Year to date ; Gross pay ; £41,632.10
My December Payslip stated ; ; Tax Year to date ; Gross pay ; £37,801.81

My gross pay monthly is £5752.95 and I thought i was paying £1750/month which avoided any tax by going into my pension 

Does this information help at all ?

As your gross (taxable?) pay has only increased by £3,831 then that suggests it's a net pay scheme.  

Which means there is nothing for you to do with regard to the pension contributions as you immediately get the maximum possible tax relief.

What you might want to do is update your estimated earnings with HMRC.  £41,632 to month 10 of the tax year is just shy of £50k annual earnings.

Dazed_and_C0nfused said:

Andrew68 said:

Dazed_and_C0nfused said:

Andrew68 said:

Dazed_and_C0nfused said:

Andrew68 said:

i don’t understand a lot of that or the jargon used.  Sorry. 

The £21,000 is the total annual pension contribution I am making from my wage on an equal monthly basis. £21k /12 months = £1750/ month. 

Which I thought avoided tax upto 40k/year pension contributions (?) 

Unless you can say how the contributions are made it's impossible to give any useful help.

You might not need to do anything.  You might need to contact HMRC with details of your (RAS) pension contributions.

The method used is key to all this.

The method used is through my HR dept in PAYE I contribute £1750/month into our works pension scheme which I though meant i avoided tax on my wages as long as I dont exceed 40k pension contribution in a year ?

Does that answer your question on the method of payment of my pension contributions ?

Unfortunately not as employer schemes could use any one of the three options.

If you are definitely making these contributions that rules our salary sacrifice so you could check your pension account to see if 25% is being added to each contribution (that would be relief at source).

Or check your payslip to see if the pension contributions are deducted before tax is calculated (which would be net pay).  For example salary £6,000 less £1,750 = taxable pay £4,250.  You can also see the impact on your P60's i.e. salary £69k but P60 only shows taxable pay of £48k.

So, my last payslip in January says ; Tax Year to date ; Gross pay ; £41,632.10
My December Payslip stated ; ; Tax Year to date ; Gross pay ; £37,801.81

My gross pay monthly is £5752.95 and I thought i was paying £1750/month which avoided any tax by going into my pension 

Does this information help at all ?

As your gross (taxable?) pay has only increased by £3,831 then that suggests it's a net pay scheme.  

Which means there is nothing for you to do with regard to the pension contributions as you immediately get the maximum possible tax relief.

What you might want to do is update your estimated earnings with HMRC.  £41,632 to month 10 of the tax year is just shy of £50k annual earnings.

Apologies for the lack of knowledge here - why might i want to update HMRC that my earnings will be just shy of 50k ; my earnings will be for they ear ; 45,545k 
which is 69035 + 10,080 (pension) - 12570 - 21,000 9pension contributions) = 45,545.

I suppose my question is ; because I am 7845 above the 20% threshold ; should 7845 of my 10,080 annual pension be taxed at 40% BUT 2235 of my remaining pension be taxed at 20% ?
(am I making sense - because currently my pension is being ALL taxed at 40%  £840/month gross and I receive £504 after tax therefore 40%)

molerat

The NI deduction is on the £3830.29 so it looks like salary sacrifice is used.  This is borne out by the employee pension deductions also being noted in employer contributions section. This would make total salary for the year £49292.68 if this payslip is the regular monthly pay, again borne out by the Dec and Jan YTD gross pay figures.  There also must have been a bonus or other payment(s) earlier in the year as the £37801.81 at December does not match 9 x January pay.  Also the "healthcare perks" - is that something the employer pays ?  If so that £2033.04 needs adding to your pay bringing you up to £51325.72 taking you into higher rate tax with the pension being correctly taxed at 40%.  The £172.59 is deducted from your pay, only the £431.47 is employer contribution (although with salary sacrifice the whole pension contribution amount is treated as employer contribution)

Andrew68

molerat said:

The NI deduction is on the £3830.29 so it looks like salary sacrifice is used.  This is borne out by the employee pension deductions also being noted in employer contributions section. This would make total salary for the year £49292.68 if this payslip is the regular monthly pay, again borne out by the Dec and Jan YTD gross pay figures.  There also must have been a bonus or other payment(s) earlier in the year as the £37801.81 at December does not match 9 x January pay.  Also the "healthcare perks" - is that something the employer pays ?  If so that £2033.04 needs adding to your pay bringing you up to £51325.72 taking you into higher rate tax with the pension being correctly taxed at 40%.  The £172.59 is deducted from your pay, only the £431.47 is employer contribution (although with salary sacrifice the whole pension contribution amount is treated as employer contribution)

Is salary sacrifice the same as AVC payments ? (just different terminally ? )  

I need to check the healthcare aspect because we have 2 healthcare schemes - x1 I think we pay a contribution towards and the other is paid for by the company I think....
But the large majority i think is paid by the company.

In terms of a bonus of some kind....in March we got a £1538 bonus but I thought for tax purposes our wages went April 23 to March 24. so the bonus wouldn't be included or am i incorrect ?

Andrew68

So folks, an update and hopefully, in really simple terms someone can assist me and answer my questions ;

I work full time but recently decided to take my lump sum tax free PPF pension payment which means I have to also take my PPF monthly pension whilst also still working fully time.

 

My goal is to avoid paying 40% tax whilst still giving myself enough to live on monthly ; therefore

my question is ; will the HMRC automatically reduce my Pension from 40% tax back to 20% within a month if I increase my AVC/Pension contributions so I earn below £37,700/year ?

 

Here are my circumstances;

 

Earnings; £69035.40

+ £2033.04 (health care cover which is added to my annual earnings so my HR dept tell me)

+ £10,080.96 Pension protection fund annual payment – which I am being taxed at 40% at present)

Total earnings : £81,149.40

-            £12570 personal allowance

-            £28,248.72 (current annual AVCs/payments into pension)

= £40,330.68 taxable earnings therefore my plan is to increase my contribution by a further £220/month ( £2,640)

= £37,690.68/year.

 

*supplementary question ; if I earn a bonus (which normally comes in March) and take it in my pay I would need to increase my AVC/pension contribution by the same amount of the bonus to avoid paying 40% tax on my monthly PPF Pension payment  (Pension Protection Fund)   ?

 

Does this all make sense ?

Dazed_and_C0nfused

my question is ; will the HMRC automatically reduce my Pension from 40% tax back to 20% within a month if I increase my AVC/Pension contributions so I earn below £37,700/year ?

No, you would need to notify them.  But now you do that depends on what method is being used to get the money into the pension

- £28,248.72 (current annual AVCs/payments into pension)

= £40,330.68 taxable earnings therefore my plan is to increase my contribution by a further £220/month ( £2,640)

What method are you using to get this money into your pension?

Net pay (reduces income on your payslip)
Relief at source (paid after tax is calculated and pension company adds 25% to your net contribution)
Salary sacrifice 

Andrew68

The truth is I am not 100% sure - i thought AVCs (Advanced voluntary contributions) was salary sacrifice and therefore one and the same ?  
My company calls them AVCs which I assume comes off my basic pay and into my pension and my tax is calculated on my remaining taxable income - i thought it was automatic and that simple. 
What am I missing ?
I'm sure i am paying into my pension and not being taxed on this income before it then goes to my pension (if that's what you are saying ?) 

Dazed_and_C0nfused

Andrew68 said:

The truth is I am not 100% sure - i thought AVCs (Advanced voluntary contributions) was salary sacrifice and therefore one and the same ?  
My company calls them AVCs which I assume comes off my basic pay and into my pension and my tax is calculated on my remaining taxable income - i thought it was automatic and that simple. 
What am I missing ?
I'm sure i am paying into my pension and not being taxed on this income before it then goes to my pension (if that's what you are saying ?) 

Although one is an employee contribution (net pay) and the other is an employer contribution (salary sacrifice) they are quite similar in that neither get pension tax relief but you will see a reduced taxable pay value on your P60 (and payslips).

So you say your earnings are £69k but what does your payslip show your taxable pay as?

Grumpy_chap

Does the pension that is being drawn invoke the restrictions to AA for future / ongoing pension contributions?
I assume not given the knowledgeable people that have responded upthread and not mentioned it.  I thought I'd mention in case that had simply been overlooked by everyone.