Tax rate band on gross salary?

A_curious_fella

Hi, I am a teacher and pay into both the Teachers Pension as well as Additional Voluntary Contributions via the Prudential. Is my tax rate calculated on my gross salary or after one, the other or both of the above have been deducted. My gross salary is £58,000 so am I in the 40% tax band or could my pensions contributions take me down to 20%. I'm trying to find out how much interest I can earn on savings. Thank you.

Dazed_and_C0nfused

If you make those contributions using the net pay method then yes, they reduce your income for tax purposes so a salary of £58k might only be taxable income of say £52k.

You should be able to check this easily by looking at your last P60, this will show if your taxable pay is a lot less than your salary.

Your payslips should also show this I would think, compare monthly salary to taxable pay in each month.

InMyDreams

The TPS contribution rate on a salary of £58k is 10.2% so you will be paying almost £6k for that alone, even without the AVC. (And yes, those payments do come out before tax is calculated so they will reduce your taxable income to not much more than £52k as per Dazed_and_C0nfused comment above.)

How much are the AVC? I don't know what method is used for those but it certainly sounds like you may well not be paying any tax at 40% yet.

How much are the savings? You will need to add all the interest earned to all of your other taxable income to determine whether the £500 or £1,000 personal savings allowance applies (even if you haven't actually paid 40% tax on any of your earnt income).

A_curious_fella

Thank you for your responses. I had been paying AVC at 5% but have just upped it to 8%

A_curious_fella

Now that I know what the situation is, I have calculated that by upping the AVCs to 8%, my new salary from September of £60,943 will be reduced to a taxable salary of £49,851 avoiding 40% tax band. I just need to keep an eye on this each year! Thank you

loofer

A_curious_fella said:

Now that I know what the situation is, I have calculated that by upping the AVCs to 8%, my new salary from September of £60,943 will be reduced to a taxable salary of £49,851 avoiding 40% tax band. I just need to keep an eye on this each year! Thank you

Very similar scenario to myself.
I up my AVCs to ensure I keep within standard rate... and also sign up for other perks that are taken from gross pay and not taxable... like Cycle To Work or in my case buying shares in the company.

I originally did it to ensure my Child Benefit wasn't impacted.

If you are on the cusp of Higher rate band then you should always keep track of any donations you make to charities (regardless if they are gift aid registered). You can claim your own Gift Aid back if you are higher rate tax payer