Starter Rate for Savings Calculated on Gross Salary or Salary Less Employee Pension Contributions?

karl10247

Hi all,
Apologies if this has been asked before, I searched and couldn't find a specific answer. Id like to know for sure how the starter rate for savings is calculated with respect to employee PAYE pension contributions (deductions).

Lets say my gross was £18,000 and employee pension contribution (net pay arrangement, taken on my payslip before tax) lets say £1000

No other non-savings income

Is my Starter Rate for Savings
a) 17570-(18000-1000)=570
b) 17570-18000=0

Thanks in advance

El_Torro

I've never really understood the whole getting £5k tax free interest a year (or more). However in your situation you will have at least £1,000 tax free interest, not less. You only get less if you earn enough (including interest) to pay 40% tax.

Ed-1

karl10247 said:

Hi all,
Apologies if this has been asked before, I searched and couldn't find a specific answer. Id like to know for sure how the starter rate for savings is calculated with respect to employee PAYE pension contributions (deductions).

Lets say my gross was £18,000 and employee pension contribution (net pay arrangement, taken on my payslip before tax) lets say £1000

No other non-savings income

Is my Starter Rate for Savings
a) 17570-(18000-1000)=570
b) 17570-18000=0

Thanks in advance

It's (a) as even though your official gross salary is not reduced, your taxable income is, similar to if you contribute to the pension by salary sacrifice which directly reduces your taxable income.

Ed-1

El_Torro said:

I've never really understood the whole getting £5k tax free interest a year (or more). However in your situation you will have at least £1,000 tax free interest, not less. You only get less if you earn enough (including interest) to pay 40% tax.

If you earn £12,570 non-savings income in a tax year, you can earn up to £5,000 taxable interest and be covered by the 0% starting rate for savings band and a further £1,000 taxable interest on top of that covered by the personal savings allowance.

The £5,000 starting rate band reduces pound for pound for any additional non-savings taxable income you get over £12,570.

karl10247

Ed-1 said:

It's (b) unless you contribute to the pension by salary sacrifice which directly reduces your taxable income.

Thankyou 

Dazed_and_C0nfused

karl10247 said:

Hi all,
Apologies if this has been asked before, I searched and couldn't find a specific answer. Id like to know for sure how the starter rate for savings is calculated with respect to employee PAYE pension contributions (deductions).

Lets say my gross was £18,000 and employee pension contribution (net pay arrangement, taken on my payslip before tax) lets say £1000

No other non-savings income

Is my Starter Rate for Savings
a) 17570-(18000-1000)=570
b) 17570-18000=0

Thanks in advance

You are overcomplicating things.  You wouldn't deduct net pay contributions.  That's because they are already deducted by your employer when calculating your taxable pay.

So if your P60 is going to show taxable pay of £17,000 and you have no other non savings non dividend income (earnings, pension, self employment, rental profits etc) then you will have already used £4,430 of your basic rate band.

Meaning you have £570 of the savings starter rate band available.

The above assumes you haven't applied for Marriage Allowance.

Eco_Miser

Dazed_and_C0nfused said:

karl10247 said:

Hi all,
Apologies if this has been asked before, I searched and couldn't find a specific answer. Id like to know for sure how the starter rate for savings is calculated with respect to employee PAYE pension contributions (deductions).

Lets say my gross was £18,000 and employee pension contribution (net pay arrangement, taken on my payslip before tax) lets say £1000

No other non-savings income

Is my Starter Rate for Savings
a) 17570-(18000-1000)=570
b) 17570-18000=0

Thanks in advance

You are overcomplicating things.  You wouldn't deduct net pay contributions.  That's because they are already deducted by your employer when calculating your taxable pay.

So if your P60 is going to show taxable pay of £17,000 and you have no other non savings non dividend income (earnings, pension, self employment, rental profits etc) then you will have already used £4,430 of your basic rate band.

Meaning you have £570 of the savings starter rate band available.

The above assumes you haven't applied for Marriage Allowance.

Ed-1 said:

It's (b) unless you contribute to the pension by salary sacrifice which directly reduces your taxable income.

And now both the OP's alternatives have been given as correct, they're back where they started, but a little more confused.

Ed-1

Eco_Miser said:

Dazed_and_C0nfused said:

karl10247 said:

Hi all,
Apologies if this has been asked before, I searched and couldn't find a specific answer. Id like to know for sure how the starter rate for savings is calculated with respect to employee PAYE pension contributions (deductions).

Lets say my gross was £18,000 and employee pension contribution (net pay arrangement, taken on my payslip before tax) lets say £1000

No other non-savings income

Is my Starter Rate for Savings
a) 17570-(18000-1000)=570
b) 17570-18000=0

Thanks in advance

You are overcomplicating things.  You wouldn't deduct net pay contributions.  That's because they are already deducted by your employer when calculating your taxable pay.

So if your P60 is going to show taxable pay of £17,000 and you have no other non savings non dividend income (earnings, pension, self employment, rental profits etc) then you will have already used £4,430 of your basic rate band.

Meaning you have £570 of the savings starter rate band available.

The above assumes you haven't applied for Marriage Allowance.

Ed-1 said:

It's (b) unless you contribute to the pension by salary sacrifice which directly reduces your taxable income.

And now both the OP's alternatives have been given as correct, they're back where they started, but a little more confused.

My bad. It's (a) as net pay method is similar to salary sacrifice in directly reducing taxable income, just differs as National Insurance is still payable on the amount contributed with net pay when it isn't with salary sacrifice.

karl10247

Eco_Miser said:

And now both the OP's alternatives have been given as correct, they're back where they started, but a little more confused.

Hahahaha you must have read my mind! I just logged on and saw more replies

karl10247

Ed-1 said:

My bad. It's (a) as net pay method is similar to salary sacrifice in directly reducing taxable income, just differs as National Insurance is still payable on the amount contributed with net pay when it isn't with salary sacrifice.

No problem, a) it is then... hopefully for good 

Thanks

karl10247

And thanks to everyone else for your replies....