Starting Rate calculation

susanann_2

Sorry to ask this question I have spent about an hour and a half looking for the answer. I am having a mental block on this. When calculating your £5000 starting rate allowance for your income are you using the gross amount before tax for income or after tax has been taken off. I have always calculated using income figures before tax now I’m questioning myself if I’m doing it right. 

ColdIron

First you apply your earnings or pension to the Personal Allowance, that is the gross or before tax figure. This could reduce the SRS available to you. Then for savings it's also gross or before tax. Otherwise it would all get a bit circular

Read this

https://www.moneysavingexpert.com/savings/tax-free-savings/

Dazed_and_C0nfused

susanann_2 said:

Sorry to ask this question I have spent about an hour and a half looking for the answer. I am having a mental block on this. When calculating your £5000 starting rate allowance for your income are you using the gross amount before tax for income or after tax has been taken off. I have always calculated using income figures before tax now I’m questioning myself if I’m doing it right. 

If you are employed it might be neither.

What has to be taken into account is any taxable non savings non dividend income.  

For example earnings, pension income, company benefits, rental income or self employment profits.

It's not unusual for your gross earnings/salary to be more than the taxable amount due to pension contributions.  For example you might have a salary of £15,000 but contribute 10% to a net pay pension scheme so your P60 will show taxable earnings of £13,500.

NB.  The amount after tax is irrelevant.

friolento

What is a net pay pension scheme please?

Dazed_and_C0nfused

friolento said:

What is a net pay pension scheme please?

It's common with public sector schemes like TPS, LGPS, NHS etc.

The pension contribution is deducted before tax is deducted so the scheme member gets the correct tax relief immediately each payday.

For an example a teacher might earn £45k but if they contribute 10% to a net pay scheme their P60 will show they have taxable earnings of £40,500 and that is the amount they will be taxed on.

The other method is relief at source (RAS) which is where there is no impact on your taxable income. £45k salary would be £45k taxable pay but the RAS pension contribution has basic rate tax relief added. So if you have over £1,000 you will end up with £1,250 in your pension fund.

It's not always the case but net pay is more often associated with defined benefit schemes and RAS with defined contribution ones.

And there is of course salary sacrifice, but they are employer contributions so there is no pension tax relief available.