Tax & Salary Sacrifice -Tax Code - 2 Incomes

GallacPT

Hi Everyone,

Looking for advice on what tax I should actually be paying . 

Employment 85k - 
Pension 20k(DB previous employer) -  everything taxed at 42%

Salary Sacrifice car 10.5k
My Pension Contributions via Salary Sacrifice 25% - 21k

Total Income 105k
Actual top line 73.5k


My tax code changed from the standard code as soon as the pension payment commenced . I now have 2 sources of income. 

I've went onto my personal tax account and my estimated salary from my employer doesn't take account of the car or the pension contributions so HMRC now think I'm going to be earning over 100k and should have part of my personal allowance removed for every pound over the 100k . 

They are estimating I will fall short by a few thousand pounds  and have changed my code to collect the tax they think I'm due for the part over 100k . 

By using Salary Sacrifice do I not reduce my income? I know the employer benefits by reduced NI contributions . Does the individual not benefit by the reduction in income aka do I not pay tax as if I'm getting 73.5k rather than 105k . 

I'm confused - I don't want to pay too much or too little tax .

Advice welcome 

Thanks 

NoMore

Usually salary sacrifice cars are classed as company cars and such have a BIK (Benefit in Kind) associated with them which will increase your tax. Unless its an EV, the BIK value can be very significant now. Have you looked at how much the salary sacrifice of the car is adding to your tax burden. Its quite likely they would change your tax code to collect this, could it be that rather than them assuming you are losing some of your personal allowance due to over 100k earnings ?

Cobbler_tone

It has to be related to your car. Sounds like time to ramp up your 25% SS contributions, every £100 in will cost you £60 in the pocket and get your full allowance back. In hindsight, did you need to access the DB, as that is the real route cause of your issues?

TheSpectator

GallacPT said:

Hi Everyone,

Looking for advice on what tax I should actually be paying . 

Employment 85k - 
Pension 20k(DB previous employer) -  everything taxed at 42%

Salary Sacrifice car 10.5k
My Pension Contributions via Salary Sacrifice 25% - 21k

Total Income 105k
Actual top line 73.5k


My tax code changed from the standard code as soon as the pension payment commenced . I now have 2 sources of income. 

I've went onto my personal tax account and my estimated salary from my employer doesn't take account of the car or the pension contributions so HMRC now think I'm going to be earning over 100k and should have part of my personal allowance removed for every pound over the 100k . 

They are estimating I will fall short by a few thousand pounds  and have changed my code to collect the tax they think I'm due for the part over 100k . 

By using Salary Sacrifice do I not reduce my income? I know the employer benefits by reduced NI contributions . Does the individual not benefit by the reduction in income aka do I not pay tax as if I'm getting 73.5k rather than 105k . 

I'm confused - I don't want to pay too much or too little tax .

Advice welcome 

Thanks 

Why would you expect to see the pension contributions? SS pension contributions are deemed employer not employee contributions.

What does your estimated pay show from your employment show as in your personal tax account? HMRC usually base this on your taxable pay reported by your employer.

Cobbler_tone

But he should see HIS SS contributions on his wage slip, with the appropriate taxable pay left. I suspect he has an add on his taxable pay for the car. If not it is a case of adding the taxable pay from the wage and DB and seeing what the total is. It should be pretty straight forward. Could be that HMRC need a nudge.

Cobbler_tone

Easiest way to explain it. Tax doesn't have to be taxing!

GallacPT

The car is an EV with a minimal BIK. 

BIK isn’t the issue .

I thought that salary sacrifice happened before tax . Therefore 85k becomes 74.5k with SS EV the remove 21k Pension it becomes 53.5k plus second income of 20k .

so total taxable income is 73.5k????

rather than taxable income of 105k