Tax on wages

Albermarle

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 ?) 

As said there are three ways of making pension contributions via a workplace pension. Different employers use different methods. 

Have a look at your pension/AVC online or at the annual statement.

Are there only employer contributions ?
Or are there separate employer and employee contributions?
If there are employee contributions, is any tax relief added?

Dazed_and_C0nfused

Grumpy_chap said:

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.  

Good point, as it was PPF I'd assumed it was a DB pension but maybe that was an assumption too far 😳

Andrew68

Dazed_and_C0nfused said:

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 

Hi Dazed & Confused ; 

Wage rise come through and I am now earning ; £71,452.67 + PPF Pension £10,080.96  - £12570 allowance - salary sacrifice (£2,172.59/month) £26,071.08/year pension salary sacrifice  = £42,892.55  Then add on our health care benefits of £2033.04 (taxable)  = £44,925.59 and therefore below the 40% threshold because of my salary sacrifice 

I think HMRC should tax me at 20% for my pension as well as my wages BECAUSE of the salary sacrifice. Am I correct ? 

molerat

Nope, you are £7.2K into higher rate tax.  Your taxable income is £57.5K, higher rate tax starts at £50270, £37700 on top of your tax allowance.

The easiest way to get the correct tax deducted would be to have a code of 1007 on the pension so no tax is deducted (well, 20p for whole year) and 250 on the wage.  I assume the health care is being payrolled ?

Andrew68

molerat said:

Nope, you are £7.2K into higher rate tax.  Your taxable income is £57.5K, higher rate tax starts at £50270, £37700 on top of your tax allowance.

The easiest way to get the correct tax deducted would be to have a code of 1007 on the pension so no tax is deducted (well, 20p for whole year) and 250 on the wage.  I assume the health care is being payrolled ?

Thanks molerat ; so my thinking is this : to get back into the 20p tax bracket and because we have savings....

instruct my HR dept to increase my monthly pension contribution by £610/month - going forward - BUT because I have missed this £610/month from April, May June July Aug & Sept forego a months pay in Oct and throw it all into my pension which would bring my earnings below the 20p mark (incl Pension) and then my pension tax would also be at 20p ; question ; would this work ?
And would my pension tax code be automatically picked up that my earnings have dropped and adjust accordingly ?

And into next tax year keep the £610 going into my pension to keep below the £37700.

Andrew68

Andrew68 said:

molerat said:

Nope, you are £7.2K into higher rate tax.  Your taxable income is £57.5K, higher rate tax starts at £50270, £37700 on top of your tax allowance.

The easiest way to get the correct tax deducted would be to have a code of 1007 on the pension so no tax is deducted (well, 20p for whole year) and 250 on the wage.  I assume the health care is being payrolled ?

Thanks molerat ; so my thinking is this : to get back into the 20p tax bracket and because we have savings....

instruct my HR dept to increase my monthly pension contribution by £610/month - going forward - BUT because I have missed this £610/month from April, May June July Aug & Sept forego a months pay in Oct and throw it all into my pension which would bring my earnings below the 20p mark (incl Pension) and then my pension tax would also be at 20p ; question ; would this work ?
And would my pension tax code be automatically picked up that my earnings have dropped and adjust accordingly ?

And into next tax year keep the £610 going into my pension to keep below the £37700.

Plus - would we benefit from the married couples allowance given my wife is currently not working ?

Dazed_and_C0nfused

Andrew68 said:

molerat said:

Nope, you are £7.2K into higher rate tax.  Your taxable income is £57.5K, higher rate tax starts at £50270, £37700 on top of your tax allowance.

The easiest way to get the correct tax deducted would be to have a code of 1007 on the pension so no tax is deducted (well, 20p for whole year) and 250 on the wage.  I assume the health care is being payrolled ?

Thanks molerat ; so my thinking is this : to get back into the 20p tax bracket and because we have savings....

instruct my HR dept to increase my monthly pension contribution by £610/month - going forward - BUT because I have missed this £610/month from April, May June July Aug & Sept forego a months pay in Oct and throw it all into my pension which would bring my earnings below the 20p mark (incl Pension) and then my pension tax would also be at 20p ; question ; would this work ?
And would my pension tax code be automatically picked up that my earnings have dropped and adjust accordingly ?

And into next tax year keep the £610 going into my pension to keep below the £37700.

Sorry to labour the point but until you understand the method used it's impossible to know if you can do that.

If, as seems most likely, the method is salary sacrifice then it isn't possible as NMW rules apply and you cannot agree to be paid nothing (or 20p) for a month's earnings.

RAS contributions are an alternative but do make life more complicated as you will need to involve HMRC.

A bigger increase (above £610) to salary sacrifice contributions over the next few months (whilst sticking within NMW rules) might be the pragmatic way forward.

You also avoid paying NI as well with salary sacrifice so better financially than just getting pension tax relief from a RAS contribution.

Dazed_and_C0nfused

Andrew68 said:

Andrew68 said:

molerat said:

Nope, you are £7.2K into higher rate tax.  Your taxable income is £57.5K, higher rate tax starts at £50270, £37700 on top of your tax allowance.

The easiest way to get the correct tax deducted would be to have a code of 1007 on the pension so no tax is deducted (well, 20p for whole year) and 250 on the wage.  I assume the health care is being payrolled ?

Thanks molerat ; so my thinking is this : to get back into the 20p tax bracket and because we have savings....

instruct my HR dept to increase my monthly pension contribution by £610/month - going forward - BUT because I have missed this £610/month from April, May June July Aug & Sept forego a months pay in Oct and throw it all into my pension which would bring my earnings below the 20p mark (incl Pension) and then my pension tax would also be at 20p ; question ; would this work ?
And would my pension tax code be automatically picked up that my earnings have dropped and adjust accordingly ?

And into next tax year keep the £610 going into my pension to keep below the £37700.

Plus - would we benefit from the married couples allowance given my wife is currently not working ?

One of you has to be born before 6 April 1935 to be eligible for Married Couple's Allowance.

https://www.gov.uk/married-couples-allowance/eligibility

I presume you really mean Marriage Allowance?

If so whether you're wife works or not is of no relevance.  To be eligible as a couple neither of you must be liable to higher rate tax.

Linton

Andrew68 said:

molerat said:

Nope, you are £7.2K into higher rate tax.  Your taxable income is £57.5K, higher rate tax starts at £50270, £37700 on top of your tax allowance.

The easiest way to get the correct tax deducted would be to have a code of 1007 on the pension so no tax is deducted (well, 20p for whole year) and 250 on the wage.  I assume the health care is being payrolled ?

Thanks molerat ; so my thinking is this : to get back into the 20p tax bracket and because we have savings....

instruct my HR dept to increase my monthly pension contribution by £610/month - going forward - BUT because I have missed this £610/month from April, May June July Aug & Sept forego a months pay in Oct and throw it all into my pension which would bring my earnings below the 20p mark (incl Pension) and then my pension tax would also be at 20p ; question ; would this work ?
And would my pension tax code be automatically picked up that my earnings have dropped and adjust accordingly ?

And into next tax year keep the £610 going into my pension to keep below the £37700.

You cant forego a month's pay because of minimum wage legislation.  Can you make a one-off payment from your wages into AVCs (rather than via Salary Sacrifice) to cover the extra pension you should have paid in the first 6 months?

Andrew68

Linton said:

Andrew68 said:

molerat said:

Nope, you are £7.2K into higher rate tax.  Your taxable income is £57.5K, higher rate tax starts at £50270, £37700 on top of your tax allowance.

The easiest way to get the correct tax deducted would be to have a code of 1007 on the pension so no tax is deducted (well, 20p for whole year) and 250 on the wage.  I assume the health care is being payrolled ?

Thanks molerat ; so my thinking is this : to get back into the 20p tax bracket and because we have savings....

instruct my HR dept to increase my monthly pension contribution by £610/month - going forward - BUT because I have missed this £610/month from April, May June July Aug & Sept forego a months pay in Oct and throw it all into my pension which would bring my earnings below the 20p mark (incl Pension) and then my pension tax would also be at 20p ; question ; would this work ?
And would my pension tax code be automatically picked up that my earnings have dropped and adjust accordingly ?

And into next tax year keep the £610 going into my pension to keep below the £37700.

You cant forego a month's pay because of minimum wage legislation.  Can you make a one-off payment from your wages into AVCs (rather than via Salary Sacrifice) to cover the extra pension you should have paid in the first 6 months?

Thanks Linton.
You'd think that would work because I use AVCs to pay any annual bonus into my pension rather than taking it....trouble is - the amount of £3660 (£610 x 6 months) will need to be spread across 2 months pay as I wouldn't have enough!