Impact of Medical Insurance on income

New_in_the_fens

I’ve been trying to keep my income below £100k to prevent the tapering of the personal allowance and the disproportionate tax issue this creates, but I think I’ve made a mistake. 

I pay for Private Medical Insurance as a taxable benefit. From looking at my P800, it appears this benefit is added to my income, so I thought I was below £100k, but it appears I am over. 

I know I probably can’t impact on my 23-24 tax, but if I increase my pension contributions via salary sacrifice in 24-25 to account for this benefit, can I bring it back under the £100k?

I’ll be over by about £2,500 this tax year, so how do I calculate how much I need to increase my pension contribution by?

Thanks for your help. 

Dazed_and_C0nfused

New_in_the_fens said:

I’ve been trying to keep my income below £100k to prevent the tapering of the personal allowance and the disproportionate tax issue this creates, but I think I’ve made a mistake. 

I pay for Private Medical Insurance as a taxable benefit. From looking at my P800, it appears this benefit is added to my income, so I thought I was below £100k, but it appears I am over. 

I know I probably can’t impact on my 23-24 tax, but if I increase my pension contributions via salary sacrifice in 24-25 to account for this benefit, can I bring it back under the £100k?

I’ll be over by about £2,500 this tax year, so how do I calculate how much I need to increase my pension contribution by?

Thanks for your help. 

Company benefits like medical insurance are just an extra source of taxable income.

Some employers deal with the tax via their payroll (payrolled benefits) in which case you would see a higher value on your P60.

But the traditional method has been to report the benefit via a P11D.  And HMRC will then include the benefit in your tax calculation.
NB.  The benefit may have been included in your tax code, so you paid extra tax during the year but it still needs to be included in your tax calculation and the tax deducted could be higher than it would otherwise have been.

Carry back of Gift Aid donations was the way to mitigate this but I'm not sure even this is possible now it's after 31 January.

If your expected adjusted net income for 2024-25 is currently £102,500 then you would need to sacrifice £2,500 to reduce that to £100,000.

I presume you know all taxable income, even that taxed at 0%, is included in the calculation of adjusted net income?

New_in_the_fens

Thanks Dazed for your detailed reply - it’s only recently I’ve needed to consider this (although in hindsight a year too late!). 

I’m including my total pay from my P60, adding on the cost of my PHI and any other benefits in kind from my P11D, plus untaxed interest. I don’t have any other ‘complexities!’

I do have an adjusted tax code to accommodate my ‘expected’ medical insurance as it’s been running a few years now, but they are always saying I’ve underpaid by about £75 each year (perpetual catching up with the actual rising cost)!

My tax code is completely wrong for 23-24 as I’ve been advised by my employer that HMRC have effectively double-counted my PHI, (hence the retrospective P800 that has made me realise my error). 

It’s anyone’s guess when that’ll be sorted, but I’ve accounted for this when coming to my £102,500 total taxable income. If I can get 24-25 below the £100k, I’m hoping to at least mitigate for this current tax year (and it all coming out in the wash). 

Dazed_and_C0nfused

Salary sacrifice really is the simple option.

You get the tax and NI benefit straight away, avoiding paying tax and NI on the income you sacrifice.

You don't have to involve HMRC.

If you're really lucky your employer will add some of the NI savings they make to the pension contribution they add for you.

New_in_the_fens

Yes, the pension is salary sacrifice and we do get the NI saving too, so that’s a bonus!