Adjusted net income and taxable income (calculation)

noclaf

This topic always confuses me even after I think I've understood it. Appreciate if anyone could confirm whether my calculation below is correct.

- Objective is to keep adjusted net income (for 24-25 tax yr) below £100k to avoid losing personal allowance and eligibility for free 15 hrs nursery

- higher rate tax payer (40%)

Illustrative numbers:

- total savings interest for tax year is £5k

- PAYE job: gross salary £90k bonus £20k. Assume no other income.

£90k+ £20k + £5k less £500 personal savings allowance = £114,500.00

If I sal sac £15500.00 into my work pension would I be left with £99k taxable income on my March25 payslip therefore meeting my objective?
TIA

Dazed_and_C0nfused

noclaf said:

This topic always confuses me even after I think I've understood it. Appreciate if anyone could confirm whether my calculation below is correct.

- Objective is to keep adjusted net income (for 23-24 tax yr) below £100k to avoid losing personal allowance and eligibility for free 15 hrs nursery

- higher rate tax payer (40%)

Illustrative numbers:

- total savings interest for tax year is £5k

- PAYE job: gross salary £90k bonus £20k. Assume no other income.

£90k+ £20k + £5k less £500 personal savings allowance = £114,500.00

If I sal sac £15500.00 into my work pension would I be left with £99k taxable income on my March25 payslip therefore meeting my objective?
TIA

I presume you realise there is only a very specific (charity related) way to change your ANI now for 23-24?

The savings nil rate (aka Personal Savings Allowance) isn't something you can deduct when calculating ANI.

Your ANI is £115,000.  That's a fact which only a carry back of Gift Aid contributions from 2024-25 can now change.  And even that is only possible in limited circumstances.

It is far too late for anything pension related to help with this.

noclaf

@Dazed_and_C0nfused - That's a typo, now corrected in OP so meant in ref. to 24-25 current tax year. Re. Personal savings allowance not being deductible from ANI ...I had no idea!! So will need to factor that in for this current tax year...I also have some BiK as part of work benefits so will need to consider those too I assume?

Dazed_and_C0nfused

If you currently expect to have taxable income of £115,000 and sacrifice £15.5k of what would have been taxable earnings then your taxable income would become £99.5k.

If you have no other taxable income such as company benefits, dividends etc and you haven't made any pension contributions or Gift Aid donations that are deductable as part of the ANI calculation (salary sacrifice contributions cannot be deducted) then your ANI would also be £99.5k.

noclaf

Dazed_and_C0nfused said:

If you currently expect to have taxable income of £115,000 and sacrifice £15.5k of what would have been taxable earnings then your taxable income would become £99.5k.

If you have no other taxable income such as company benefits, dividends etc and you haven't made any pension contributions or Gift Aid donations that are deductable as part of the ANI calculation (salary sacrifice contributions cannot be deducted) then your ANI would also be £99.5k.

Thanks, and just for certainty, if I receive for example £5000 in savings interest (e.g: standard savings account outside of a tax wrapper), this will not count towards ANI? For tax year 23-24 I did include savings interest so likely sal sac'd more than needed but not a big issue.

Re. Salary sacrifice not being deductable, my work pension allows for gross contributions before tax...so I assume those are deductable and will reduce my ANI but the % 'matched contributions' from my employer are not deductable...or have I got that wrong? Quite sure that if I increase my pension contribution I see my gross salary on payslip reduce.

Dazed_and_C0nfused

noclaf said:

Dazed_and_C0nfused said:

If you currently expect to have taxable income of £115,000 and sacrifice £15.5k of what would have been taxable earnings then your taxable income would become £99.5k.

If you have no other taxable income such as company benefits, dividends etc and you haven't made any pension contributions or Gift Aid donations that are deductable as part of the ANI calculation (salary sacrifice contributions cannot be deducted) then your ANI would also be £99.5k.

Thanks, and just for certainty, if I receive for example £5000 in savings interest (e.g: standard savings account outside of a tax wrapper), this will not count towards ANI? For tax year 23-24 I did include savings interest so likely sal sac'd more than needed but not a big issue.

Re. Salary sacrifice not being deductable, my work pension allows for gross contributions before tax...so I assume those are deductable and will reduce my ANI but the % 'matched contributions' from my employer are not deductable...or have I got that wrong? Quite sure that if I increase my pension contribution I see my gross salary on payslip reduce.

All taxable income form parts of your ANI, so £5,000 interest will add £5,000 to it.  Not £4,000. Nor £4,500.

You cannot deduct employer pension contributions when calculating ANI.  Salary sacrifice results in extra employer contributions, £15,500 in your original post.  You cannot deduct these when calculating your ANI.

Are you getting confused between the starting point for ANI of your taxable income and what can be deducted when then calculating ANI?

noclaf

Are you getting confused between the starting point for ANI of your taxable income and what can be deducted when then calculating ANI?

Yes and it seems I mistakenly assumed personal allowance for savings interest (£500 as I am in higher rate income tax band) could be included as part of ANI calculation i.e:  used to reduce the total figure for savings interest.
I am also still confused about pension contributions; if I am making a 10% pension contribution each month using employer salary sacrifice scheme then will that count towards reducing taxable income? 

My PAYE job and interest on savings are my only sources of income. Every month my work payslip shows 'taxable income'....is it simply a case of tracking this figure to ensure it stays below £100k (and taking into account total savings  interest received during 24-25 tax year)

Dazed_and_C0nfused

noclaf said:

Are you getting confused between the starting point for ANI of your taxable income and what can be deducted when then calculating ANI?

Yes and it seems I mistakenly assumed personal allowance for savings interest (£500 as I am in higher rate income tax band) could be included as part of ANI calculation i.e:  used to reduce the total figure for savings interest.
I am also still confused about pension contributions; if I am making a 10% pension contribution each month using employer salary sacrifice scheme then will that count towards reducing taxable income? 

My PAYE job and interest on savings are my only sources of income. Every month my work payslip shows 'taxable income'....is it simply a case of tracking this figure to ensure it stays below £100k (and taking into account total savings  interest received during 24-25 tax year)

You haven't quite grasped how salary sacrifice works.

You aren't contributing anything to the pension, you are agreeing to a reduced salary, in return for additional employer contributions.  You don't receive any pension tax relief on employer contributions and as you haven't made any pension contributions there is nothing for you to deduct when it comes to calculating your ANI.

The starting point for ANI is your taxable income.  If all you have is your earnings (P60 taxable pay figure) and interest then it is very straightforward.  Other people might, for example, have company benefits to include in their taxable income or RAS pension contributions to deduct.

noclaf

Thanks @Dazed_and_C0nfused, all makes sense...and by agreeing to a reduced salary in return for additional pension contributions that should reduce my taxable pay?

Dazed_and_C0nfused

noclaf said:

Thanks @Dazed_and_C0nfused, all makes sense...and by agreeing to a reduced salary in return for additional pension contributions that should reduce my taxable pay?

Yes.  You just can't use salary sacrifice and drop under NMW.  But that doesn't look to be an issue here 😉