Income calculation/ adjusted net

incentive

Hi
I am self employed 

If my gross income ( turnover - expenses) is £70,000

If I pay £1000 with bank transfer into a SIPP. The pension companies at some point I believe claims some tax benefits on the £1000 SIpp and add it to my pension so should total £1200 pension in the SIPP account.

To calculate my tax bill and child benefit- how do I do this please? 

£70000- £1000 = net income
or
£70000- £1200 = net income

Thanks

Kynthia

Have you seen this link with the steps to calculate your adjusted net income?

https://www.gov.uk/guidance/adjusted-net-income

It seems like you are looking at step 3 because your pension provider is adding tax relief to your contributions. You can see here it tells you to deduct the grossed up pension contributions not the net payment you made.

If you contribute £1000 to a relief at source scheme they will add £250, not £200. They add 20% of the gross final amount not 20% of your net contribution, and £250 is 20% of £1250. 

Exodi

incentive said:

Hi
I am self employed 

If my gross income ( turnover - expenses) is £70,000

If I pay £1000 with bank transfer into a SIPP. The pension companies at some point I believe claims some tax benefits on the £1000 SIpp and add it to my pension so should total £1200 pension in the SIPP account.

To calculate my tax bill and child benefit- how do I do this please? 

£70000- £1000 = net income
or
£70000- £1200 = net income

Thanks

<snipping for inaccuracy>

Regarding your calculations, it's incorrect -

If you paid £1000 into your account, you'd get £250 tax relief - because it's intended to relieve you of the tax you paid at the basic rate. So in theory you would have earned  £1250, had £250 deducted in basic rate tax (20%) and been paid £1000 which you put into your pension.

So it's 20% as you say, but of the gross amount - don't worry this confuses a lot of people!

In your example it would be £70,000 - £1,250 (assuming there is nothing else to consider, check the link Kynthia added above).

sheramber

Do you have any other taxable oncome such as rental income, dividend income, bank interest. Even if interest is below personal allowance it is still counted. 

Dazed_and_C0nfused

Exodi said:

incentive said:

Hi
I am self employed 

If my gross income ( turnover - expenses) is £70,000

If I pay £1000 with bank transfer into a SIPP. The pension companies at some point I believe claims some tax benefits on the £1000 SIpp and add it to my pension so should total £1200 pension in the SIPP account.

To calculate my tax bill and child benefit- how do I do this please? 

£70000- £1000 = net income
or
£70000- £1200 = net income

Thanks

Are you making personal (employee) contributions into your pension? For most self-employed people I'd imagine it makes more sense to make company (employer) contributions from the company (which you wouldn't pay tax on - but similarly you wouldn't be due tax relief either). There are many benefits to doing this, particular in regards to saving money on NI, look up one of the many threads about salary sacrifice.

Regarding your calculations, it's incorrect -

If you paid £1000 into your account, you'd get £250 tax relief - because it's intended to relieve you of the tax you paid at the basic rate. So in theory you would have earned  £1250, had £250 deducted in basic rate tax (20%) and been paid £1000 which you put into your pension.

So it's 20% as you say, but of the gross amount - don't worry this confuses a lot of people!

In your example it would be £70,000 - £1,250 (assuming there is nothing else to consider, check the link Kynthia added above).

They wouldn't be self employed though.

incentive

Hi thank you . 

So can I check my calculations with you as below and ask a couple of other things please with letter figures. 

Business income (invoices- expenses) = £90000

bank interest £900 (do I get £500 tax allowance  so £400 taxable? 

No other income =Complete gross £90400?

Sipp I paid in £30000. Now has had tax relief put in £7500 . Grossed up pension = £37500

Gift aid 
net from sales£17.68 , charity claimed £4.42 in gift aid =£22.10 gross gift aid?

so for adjusted net income ( the figure I need to use re child allowance) 
£90400- £37500- £22.10
= £52,877.90??

is that correct please ? 

Also “Earnings” brackets for  personal allowance  what is that figure for me please? Is it my gross income £90400 or the amount after grossed up pension and gift aid please??

Thanks so much 🙏

Grumpy_chap

OP - just to confirm, you are self-employed sole-trader, and not via your own Ltd Co.  

HappyHarry

The interest counts as the full £900 income for ANI purposes - it just attracts 0% tax on the first £500.

Kynthia

Try posting on the 'cutting tax' or 'pension and retirement planning' parts of the forum.

incentive

Thanks for clarification I  was self employed sole trader.