Need help calculating how much to pay into pension to offset tax underpayment this year

fronty

Hi all,

I'm getting myself in a bit of a muddle. Using various tax calculators it looks like I will end up with an underpayment in tax this year of about £3K, I think this is probably due to an incorrect tax code (last tax year I underestimated how much I would earn this year, so my tax code was set too low).

This year my net adjusted earnings will be about £127K, I am already paying into a SIPP to try and reduce the tax take but I can't afford to pay any more in to get my adjusted earnings down to £100K, so I am resigned to the fact that I've lost my personal allowance.

What I would like to do is pay enough in so that I don't have the underpayment at the end of the year, I think I'd need to make a £7,500 gross contribution so that I didn't then owe the £3K tax at the end of the year (ie bring my adjusted net income down to around £120K), but I'm not sure how much to pay in "net". Obvs HMRC will add 20% anyway, and I'll get the extra 20% on top, so does that mean I "just" need to pay in £4,500? If I can get my earnings down to 120K then I get a bit of personal allowance back too?

It's still quite a lot to pay in but I'd rather pay it into my pension than hand 3K over to HMRC, looking at my payslips it looks like I'll be paying around 40K tax this year whereas the calculators are coming up with figures of 43K if I don't do anything, hence where the 3K shortfall is coming from.

Does this all sound about right or have I got this all completely wrong?

Thanks for your help.

BoGoF

Nowhere near enough info to give an answer. What do you expect your final taxable pay and tax figures to be. Any benefits in kind. What is your current tax code and how is it made up

Dazed_and_C0nfused

I think you are overcomplicating things.

Firstly which tax year are you concerned with, you mention ANI of £127k for this year but are also using this figure for then next tax year.  

You can only get tax relief for the tax year contribution is made in.

Have you included all taxable income in your ANI calculations?  Interest and dividends taxed at 0% are still part of your ANI.

With relief at source pension contributions there are two figures you need to think about, you never get 40% relief as far as your pension is concerned as any higher rate tax relief is a personal tax saving that benefits you.

So if you want to contribute £7,500 gross you would have to pay £6,000.  The pension company then adds 25% to make it up to £7,500.  No other amount is relevant.

But that £7,500 (which only cost you £6,000) may save you a good whack in tax 😀

fronty

Dazed_and_C0nfused said:

So if you want to contribute £7,500 gross you would have to pay £6,000.  The pension company then adds 25% to make it up to £7,500.  No other amount is relevant.

But that £7,500 (which only cost you £6,000) may save you a good whack in tax 😀

Thanks, I think this was the bit I was getting confused about. I'm working on this years figures (23/24), with only a couple weeks left until the end of this tax year I'm trying to head off a potential tax bill when I do my self-assessment by making a SIPP contribution now. But not sure I have 6K stuffed down the back of the sofa.

Dazed_and_C0nfused

fronty said:

Dazed_and_C0nfused said:

So if you want to contribute £7,500 gross you would have to pay £6,000.  The pension company then adds 25% to make it up to £7,500.  No other amount is relevant.

But that £7,500 (which only cost you £6,000) may save you a good whack in tax 😀

Thanks, I think this was the bit I was getting confused about. I'm working on this years figures (23/24), with only a couple weeks left until the end of this tax year I'm trying to head off a potential tax bill when I do my self-assessment by making a SIPP contribution now. But not sure I have 6K stuffed down the back of the sofa.

That makes sense if you can find the money but it doesn't seem to be what you were originally suggesting.


This year my net adjusted earnings will be about £127K, I am already paying into a SIPP to try and reduce the tax take but I can't afford to pay any more in to get my adjusted earnings down to £100K, so I am resigned to the fact that I've lost my personal allowance

fronty

Dazed_and_C0nfused said:

That makes sense if you can find the money but it doesn't seem to be what you were originally suggesting.

This year my net adjusted earnings will be about £127K, I am already paying into a SIPP to try and reduce the tax take but I can't afford to pay any more in to get my adjusted earnings down to £100K, so I am resigned to the fact that I've lost my personal allowance

That's me talking at cross-purposes, I don't have enough spare cash to get my ANI back down to 100K (ie 27K lump sum into my SIPP), which is what I had done in previous tax years (I wasn't earning as much as this year so it was a bit easier to deal with). For next tax year I have increased my monthly DD to help with this (have already updated the DD mandate).

Dazed_and_C0nfused

fronty said:

Dazed_and_C0nfused said:

That makes sense if you can find the money but it doesn't seem to be what you were originally suggesting.

This year my net adjusted earnings will be about £127K, I am already paying into a SIPP to try and reduce the tax take but I can't afford to pay any more in to get my adjusted earnings down to £100K, so I am resigned to the fact that I've lost my personal allowance

That's me talking at cross-purposes, I don't have enough spare cash to get my ANI back down to 100K (ie 27K lump sum into my SIPP), which is what I had done in previous tax years (I wasn't earning as much as this year so it was a bit easier to deal with). For next tax year I have increased my monthly DD to help with this (have already updated the DD mandate).

Ok, understood.

Just remember that this tax year it's only once you get your ANI down to below £125,140 that you get the most benefit.

It will still be a very cheap way to get money into your pension with higher rate relief but the next £2k or so you add (in this tax year) won't have the added bonus of restoring any Personal Allowance.