Income Tax and Pension Contributions

DE_612183

Nomunnofun1 said:

DE_612183 said:

Can you confirm that your tax CODE is being adjusted and what it os - HMRC Personal Tax Account will tell you this.

In reality moving into the higher tax band only affects that income in excess of the threshold - so if you were £1000 over youd pay £400 tax not £250 - so it's only £150 more tax - but you're actually £600 more in your pocket...

£400 as opposed to £200?

yep - getting my % mixed up TFLS's which I'm looking at at the same time! 

chrisbur

pollyanna24 said:

My old tax code was 1257L and they are changing it to 1182L for my main occupation.  The second occupation is and has always been BR.

HMRC appear to think that your combined taxable pay for your two jobs is going to be over the £50270.  The only way that they can adjust your codes to account for this is by reducing your tax allowance so that the extra to cover the 40% tax you need to pay is deducted from your main job.  This is not always 100% accurate but is usually about right.  
To check your figures you need to take your taxable pay figures for each job.  If your pension is deducted before tax then you will have two figures on your payslip, a gross to date and taxable gross to date, it is the taxable gross to date that you need.  Do these figures added together indicate that you will earn over the £50270

SiliconChip

chrisbur said:

pollyanna24 said:

My old tax code was 1257L and they are changing it to 1182L for my main occupation.  The second occupation is and has always been BR.

HMRC appear to think that your combined taxable pay for your two jobs is going to be over the £50270.  The only way that they can adjust your codes to account for this is by reducing your tax allowance so that the extra to cover the 40% tax you need to pay is deducted from your main job.  This is not always 100% accurate but is usually about right.  
To check your figures you need to take your taxable pay figures for each job.  If your pension is deducted before tax then you will have two figures on your payslip, a gross to date and taxable gross to date, it is the taxable gross to date that you need.  Do these figures added together indicate that you will earn over the £50270

And as mentioned by @DRS1 any unearned income also needs to be included in the calculation - with the rise in savings interest rates for the 2023/4 tax year many more people now have interest payments above their Personal Savings Allowance for the first time, and of course if the OP's total income has crept into the higher rate band then the PSA will be reduced from £1000 to £500.

pollyanna24

Thanks everyone.

Maybe I just had the wrong idea about taking my pension contributions off and thinking they didn’t count.

Will make me think about taking any extra shifts at the supermarket in case it throws me over again. 

So my new tax rate will be for the whole of 2025/26 based on what I earned in 2024/25?

DE_612183

pollyanna24 said:

Thanks everyone.

Maybe I just had the wrong idea about taking my pension contributions off and thinking they didn’t count.

Will make me think about taking any extra shifts at the supermarket in case it throws me over again. 

So my new tax rate will be for the whole of 2025/26 based on what I earned in 2024/25?

It will - unless your income changes...

pollyanna24

My supermarket payslip had at the bottom in the year to date bit:-

taxable pay - £7,100
gross pay - £7,900

but not sure what it means as they tax me on everything I earn as it’s my second job. The £600 difference does equate to roughly what I have put in that work pension for this year to date though.

molerat

pollyanna24 said:

My supermarket payslip had at the bottom in the year to date bit:-

taxable pay - £7,100
gross pay - £7,900

but not sure what it means as they tax me on everything I earn as it’s my second job. The £600 difference does equate to roughly what I have put in that work pension for this year to date though.

That looks like a net pay scheme.  You need to look at your Nest account to see if there is an entry for tax being added to your contributions.  If there is you need to inform HMRC of that (estimated) total for the year gross amount of your contributions (not the employer) plus the tax as well as the same for the SL pension.  That will increase your higher tax threshold from the current £50270 likely taking you out of higher rate tax resulting in having the code changed back. You can do that via the on line portal https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments
They obviously don't tax you on "everything", only on £7100 of the £7900 wages.

pollyanna24

Much appreciated.  I've now looked into the claiming tax relief side of things and think I understand things a tiny bit better.  

I haven't filled in the form yet online as I'm not sure about two things:-

1. Am I better waiting till the end of the tax year when I have made all my pension contributions for this year?

2. When it asks for the amounts I have contributed, is it the actual amounts I have made or do I have to account for the 20% I may already have benefitted from?

Because I have never been over the threshold before, do I also have to let them know about any interest on savings I got during the year (not a lot, but about £200).

Dazed_and_C0nfused

pollyanna24 said:

Much appreciated.  I've now looked into the claiming tax relief side of things and think I understand things a tiny bit better.  

I haven't filled in the form yet online as I'm not sure about two things:-

1. Am I better waiting till the end of the tax year when I have made all my pension contributions for this year?

2. When it asks for the amounts I have contributed, is it the actual amounts I have made or do I have to account for the 20% I may already have benefitted from?

Because I have never been over the threshold before, do I also have to let them know about any interest on savings I got during the year (not a lot, but about £200).

1.  Yes.  Why would waste yours and HMRC's time doing it twice when we are so so close to the end of the tax year?

2.  You only tell them about relief at source contributions where 25% is added within your pension fund.  You would never mention the net pay contributions made on your supermarket job.

pollyanna24

Thank you.  I didn't realise it would be a waste of time.  I don't know how the system works.  I received the e-mail about my tax code changing which is the first I realised I might need to do something about anything.

From what I recall, the form just asked about my pension contributions.  Without knowing what you have mentioned in point 2., how would I know not to include this pension?  I assume the form is to be filled by a lay person and not an expert.

I have worked out that I will only be about £500 over the threshold, but they have calculated it as closer to £800.  I am not sure if this is due to the interest on savings I received.  For such a small amount, is it even worth filling in the online form if I am likely to get something wrong due to not understanding it properly?  I know I could get a tax accountant involved, but for such a small amount, I am not sure it is worth it.