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Income calculation/ adjusted net

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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

Comments

  • Kynthia
    Kynthia Posts: 5,672 Forumite
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    edited 18 April at 9:48AM
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    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. 
    Don't listen to me, I'm no expert!
  • Exodi
    Exodi Posts: 3,010 Forumite
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    edited 19 April at 8:30AM
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    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).
    Know what you don't
  • sheramber
    sheramber Posts: 19,726 Forumite
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    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
    Dazed_and_C0nfused Posts: 13,986 Forumite
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    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
    incentive Posts: 6 Forumite
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    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
    Grumpy_chap Posts: 15,370 Forumite
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    OP - just to confirm, you are self-employed sole-trader, and not via your own Ltd Co.  
  • HappyHarry
    HappyHarry Posts: 1,609 Forumite
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    The interest counts as the full £900 income for ANI purposes - it just attracts 0% tax on the first £500.
    I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
  • Kynthia
    Kynthia Posts: 5,672 Forumite
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    Try posting on the 'cutting tax' or 'pension and retirement planning' parts of the forum.
    Don't listen to me, I'm no expert!
  • incentive
    incentive Posts: 6 Forumite
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    Thanks for clarification I  was self employed sole trader. 
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