Income from different sources and pension tax relief

bertieboodle

I have just done my tax return 😁 and it's got me thinking about my next one.

 I am a basic rate tax payer and, all being equal, I will gross £28k next year. Half of that is through my employers payroll. A little bit is from self-employed earnings, a bit more is from a commercial rental and I shall have a couple of savings accounts maturing.

 I don't need my PAYE earnings at the moment but do need a bigger pension. it's a new-ish job and the pension has only just been set up, I thought I'd salary sacrifice the full £14k with a view to reducing my tax bill next year. But, the figure on my P60 is gross pay which doesn't include deductions.

 Am I able to declare the salary sacrifice on my tax return or would it be better to just sacrifice enough to take my paye earnings down to the personal allowance then top up from other income and put that on my tax return?

Phoenix72

You can't salary sacrifice to an amount below NMW.

Why would you declare sal sacrifice on ykur tax return? Your reduced earnings reflect that fact.

Dazed_and_C0nfused

bertieboodle said:

I have just done my tax return 😁 and it's got me thinking about my next one.

 I am a basic rate tax payer and, all being equal, I will gross £28k next year. Half of that is through my employers payroll. A little bit is from self-employed earnings, a bit more is from a commercial rental and I shall have a couple of savings accounts maturing.

 I don't need my PAYE earnings at the moment but do need a bigger pension. it's a new-ish job and the pension has only just been set up, I thought I'd salary sacrifice the full £14k with a view to reducing my tax bill next year. But, the figure on my P60 is gross pay which doesn't include deductions.

 Am I able to declare the salary sacrifice on my tax return or would it be better to just sacrifice enough to take my paye earnings down to the personal allowance then top up from other income and put that on my tax return?

You can never declare salary sacrifice contributions on a tax return as they are employer contributions and as such you are not entitled to any tax relief on them.

Obviously agreeing to a reduced salary to get those employer contributions will mean you have less taxable income and avoid paying tax on the amount sacrificed but there is no separate personal tax saving available to you.

If you agree to sacrifice salary your P60 would reflect the reduced taxable income you have, there is nothing more you can or should do other than report the correct taxable income.

Also, NMW is a factor with salary sacrifice and you certainly couldn't sacrifice your whole salary.

 

molerat

You cannot sacrifice below NMW.  Sacrifice reduces your pay so you simply declare your PAYE income, there is no pension deduction to declare as all pension payments are employer..

bertieboodle

Dazed_and_C0nfused said:

bertieboodle said:

I have just done my tax return 😁 and it's got me thinking about my next one.

 I am a basic rate tax payer and, all being equal, I will gross £28k next year. Half of that is through my employers payroll. A little bit is from self-employed earnings, a bit more is from a commercial rental and I shall have a couple of savings accounts maturing.

 I don't need my PAYE earnings at the moment but do need a bigger pension. it's a new-ish job and the pension has only just been set up, I thought I'd salary sacrifice the full £14k with a view to reducing my tax bill next year. But, the figure on my P60 is gross pay which doesn't include deductions.

 Am I able to declare the salary sacrifice on my tax return or would it be better to just sacrifice enough to take my paye earnings down to the personal allowance then top up from other income and put that on my tax return?

You can never declare salary sacrifice contributions on a tax return as they are employer contributions and as such you are not entitled to any tax relief on them.

Obviously agreeing to a reduced salary to get those employer contributions will mean you have less taxable income and avoid paying tax on the amount sacrificed but there is no separate personal tax saving available to you.

If you agree to sacrifice salary your P60 would reflect the reduced taxable income you have, there is nothing more you can or should do other than report the correct taxable income.

Also, NMW is a factor with salary sacrifice and you certainly couldn't sacrifice your whole salary.

 

That makes sense TY. I had read about the NMW point and raised it with my employer. They seemed OK with the high level of sacrifice. Will revisit with them🤷‍♀️

Would there be an impact on my tax bill if I made extra in-year contributions from other taxable income - the rent from my shop or self-employed earnings?

I'm trying to find a way to boost my pension that maximises any tax advantage.

Dazed_and_C0nfused

bertieboodle said:

Dazed_and_C0nfused said:

bertieboodle said:

I have just done my tax return 😁 and it's got me thinking about my next one.

 I am a basic rate tax payer and, all being equal, I will gross £28k next year. Half of that is through my employers payroll. A little bit is from self-employed earnings, a bit more is from a commercial rental and I shall have a couple of savings accounts maturing.

 I don't need my PAYE earnings at the moment but do need a bigger pension. it's a new-ish job and the pension has only just been set up, I thought I'd salary sacrifice the full £14k with a view to reducing my tax bill next year. But, the figure on my P60 is gross pay which doesn't include deductions.

 Am I able to declare the salary sacrifice on my tax return or would it be better to just sacrifice enough to take my paye earnings down to the personal allowance then top up from other income and put that on my tax return?

You can never declare salary sacrifice contributions on a tax return as they are employer contributions and as such you are not entitled to any tax relief on them.

Obviously agreeing to a reduced salary to get those employer contributions will mean you have less taxable income and avoid paying tax on the amount sacrificed but there is no separate personal tax saving available to you.

If you agree to sacrifice salary your P60 would reflect the reduced taxable income you have, there is nothing more you can or should do other than report the correct taxable income.

Also, NMW is a factor with salary sacrifice and you certainly couldn't sacrifice your whole salary.

 

That makes sense TY. I had read about the NMW point and raised it with my employer. They seemed OK with the high level of sacrifice. Will revisit with them🤷‍♀️

Would there be an impact on my tax bill if I made extra in-year contributions from other taxable income - the rent from my shop or self-employed earnings?

I'm trying to find a way to boost my pension that maximises any tax advantage.

Not unless you are Scottish resident no.

As a basic rate payer personal contributions would be made using the relief at source method and you wouldn't save any tax.

You would of course get the 25% that the pension company adds to your contribution (which is 20% of the gross contribution).

So £100 added by you becomes £125 in the pension.

But when you come to file your tax return it won't change your tax liability.