How does estimated income affect PAYE?

TommyfromDarlington

Hello, 

Would be really grateful if someone could help me.

I earn around £52k (after salary sacrifice pension contributions have been deducted) but I sometimes get an annual bonus that can boost this to around £60k.

I make payments into a SIPP to keep my adjusted earnings below £50k so as to avoid paying higher rate tax and to keep below the threshold for HICBC.

I don't want to get an unexpected tax bill so I would prefer to pay more tax throughout the year and then get a rebate (if there is one) at the end of the year.  

Is it therefore better to set my estimated income at £60k (i.e. best case to assume a bonus might be received), £52k (i.e. my basis earnings) or £50k (i.e. my adjusted earnings taking into account SIPP contributions)?   

Any advice would be much appreciated.

[Deleted User]

There are two different things - adjusted net income and taxable earnings. You adjust your estimated earnings to the taxable income that you expect to receive. SIPP payments do not reduce taxable income. 

Dazed_and_C0nfused

TommyfromDarlington said:

Hello, 

Would be really grateful if someone could help me.

I earn around £52k (after salary sacrifice pension contributions have been deducted) but I sometimes get an annual bonus that can boost this to around £60k.

I make payments into a SIPP to keep my adjusted earnings below £50k so as to avoid paying higher rate tax and to keep below the threshold for HICBC.

I don't want to get an unexpected tax bill so I would prefer to pay more tax throughout the year and then get a rebate (if there is one) at the end of the year.  

Is it therefore better to set my estimated income at £60k (i.e. best case to assume a bonus might be received), £52k (i.e. my basis earnings) or £50k (i.e. my adjusted earnings taking into account SIPP contributions)?   

Any advice would be much appreciated.

You are at risk of interfering in things you probably don't fully understand.

For example if you set your estimated earnings at £60k and then you only earn £52k it's entirely possible you will end up owing tax.

That's because your tax code would have provisionally allowed some higher rate relief on your RAS pension contributions when much less relief was actually due.

The above assumes HMRC are already aware of your RAS contributions.

If they aren't then changing your estimated earnings from £52k to £60k is unlikely to have any impact.  One scenario where they would is if your tax code included a restriction for any tax owed.

TommyfromDarlington

Dazed_and_C0nfused said:

TommyfromDarlington said:

Hello, 

Would be really grateful if someone could help me.

I earn around £52k (after salary sacrifice pension contributions have been deducted) but I sometimes get an annual bonus that can boost this to around £60k.

I make payments into a SIPP to keep my adjusted earnings below £50k so as to avoid paying higher rate tax and to keep below the threshold for HICBC.

I don't want to get an unexpected tax bill so I would prefer to pay more tax throughout the year and then get a rebate (if there is one) at the end of the year.  

Is it therefore better to set my estimated income at £60k (i.e. best case to assume a bonus might be received), £52k (i.e. my basis earnings) or £50k (i.e. my adjusted earnings taking into account SIPP contributions)?   

Any advice would be much appreciated.

You are at risk of interfering in things you probably don't fully understand.

For example if you set your estimated earnings at £60k and then you only earn £52k it's entirely possible you will end up owing tax.

That's because your tax code would have provisionally allowed some higher rate relief on your RAS pension contributions when much less relief was actually due.

The above assumes HMRC are already aware of your RAS contributions.

If they aren't then changing your estimated earnings from £52k to £60k is unlikely to have any impact.  One scenario where they would is if your tax code included a restriction for any tax owed.

"You are at risk of interfering in things you probably don't fully understand"

Yes, hence the reason I'm asking the question

TommyfromDarlington

[Deleted User] said:

There are two different things - adjusted net income and taxable earnings. You adjust your estimated earnings to the taxable income that you expect to receive. SIPP payments do not reduce taxable income. 

Thanks for your reply.   I realise that taxable earnings less SIPP contributions = adjusted nett income but until year end I don't know what my taxable earnings will be as it depends on bonus.   It's effectively going to be somewhere between 52k and 60k so I'm really just trying to ascertain whether it's better to set my expected earnings at 52k or 60k.

Obviously I'll end up paying the same amount of tax anyway but I'd rather err on the side of caution and then get a rebate rather than the other way around.