Salary increase pushes me over basic rate tax threshold

joey23

I’m looking for some advice. I work part time. I have recently been given a salary increase which puts my annual pro rata salary at £13905pa. I’ve since started paying tax £17.60pm and £7.80pm employee NI. Which I didn’t pay prior to salary increase as I was under the threshold for tax. 

My current pension contribution is £24.66pm. I just wondering if I could increase the amount paid into my pension monthly to save part of this salary increase going to the tax man and put it towards my future instead?

Dazed_and_C0nfused

joey23 said:

I’m looking for some advice. I work part time. I have recently been given a salary increase which puts my annual pro rata salary at £13905pa. I’ve since started paying tax £17.60pm and £7.80pm employee NI. Which I didn’t pay prior to salary increase as I was under the threshold for tax. Kind of makes my salary increase a bit pointless as I’m  now just paying tax! 

My current pension contribution is £24.66pm. I just wondering if I could increase the amount paid into my pension monthly to save this salary increase going to the tax man and put it towards my future instead?

I genuinely don't understand your logic, are you saying the £25.40 you are now paying in tax and NI is more than your pay rise?

Anyway, how extra pension contributions will impact things depends entirely on the method your employer uses for their scheme.  Until you know that it's impossible to answer your question.

Relief at source (you will see 25% added by the pension company in your pension fund)
Net pay
Salary sacrifice 

joey23

I got around £115pm increase but now paying £25.40 for tax/ni with that increase. I was wondering if I could put that money into pension monthly by increasing payments.
pension looks like relief at source as online pension account shows tax relief paid to nest on top of employee and employer contributions.

Dazed_and_C0nfused

joey23 said:

I got around £115pm increase but now paying £25.40 for tax/ni with that increase. I was wondering if I could put that money into pension monthly by increasing payments.
pension looks like relief at source as online pension account shows tax relief paid to nest on top of employee and employer contributions.

So extra relief at source contributions won't reduce the tax you are paying.

And there is no direct link between the tax you pay and the basic rate tax relief you can get with relief at source contributions.

But if you increase your contributions you will get tax relief added to those as well and you could see that as like getting some of your £17.60 tax back each week.  Although technically the two are unrelated.

joey23

Ok thank you 

InMyDreams

No need to even stop there. Pay a bit more to the pension and you’ll get even more tax relief. So you’ll end up getting more in tax relief than you ever paid on your salary in the first place. In the extreme you could pay in the lot and get the 25% uplift on all if it! Unfortunately a bit tricky unless you are being supported financially by someone else.

Dazed_and_C0nfused

InMyDreams said:

No need to even stop there. Pay a bit more to the pension and you’ll get even more tax relief. So you’ll end up getting more in tax relief than you ever paid on your salary in the first place. In the extreme you could pay in the lot and get the 25% uplift on all if it! Unfortunately a bit tricky unless you are being supported financially by someone else.

Remember you can't put your (taxable) earnings in and get the basic rate relief added.

The gross contribution is limited to the earnings, so you would have a little bit of money left to live on 😉.

Earn £10k and you could add £8k, which becomes £10k in the pension.

You can't add £10k and end up with £12.5k (when earning £10k).

InMyDreams

Oof, yes, very sloppy language on my part. You are absolutely right. You end up with ‘the lot’ in the pension rather than put ‘the lot’ in.