Tax on savings interest

PawelK

Hello all.

I haven't been on here for a while and I'm sure this subject has been mulled over multiple times but I seem to be missing some trick. 
So far, I understood that the tax free amount you get (500vs1,000) depends on your TAXABLE income and not gross. But lately I was surprised when HMRC messaged me that I owe some tax and when I checked the breakdown, it shows my limit being only £500.

However, from my gross income of roughly 60k, my pension contributions were taking me to around 48k annual taxable income (so below 52,700) hence I was certain my tax free interest cap would be 1,000. 

So, I am either in wrong or HMRC possibly made a mistake although their breakdown of my earnings seem roughly correct. 

Please advise as simply as possible. 😆

Dazed_and_C0nfused

PawelK said:

Hello all.

I haven't been on here for a while and I'm sure this subject has been mulled over multiple times but I seem to be missing some trick. 
So far, I understood that the tax free amount you get (500vs1,000) depends on your TAXABLE income and not gross. But lately I was surprised when HMRC messaged me that I owe some tax and when I checked the breakdown, it shows my limit being only £500.

However, from my gross income of roughly 60k, my pension contributions were taking me to around 48k annual taxable income (so below 52,700) hence I was certain my tax free interest cap would be 1,000. 

So, I am either in wrong or HMRC possibly made a mistake although their breakdown of my earnings seem roughly correct. 

Please advise as simply as possible. 😆

Most pension contributions have no impact on your taxable income.

What method did you use to get money into your pension?

If it was relief at source then what does your P60 show your taxable earnings/pension to be?

surreysaver

Don't forget that you need to add interest earned to your taxable income too (unless its in an ISA). This could tip you into the 40% bracket if you're close to it 

PawelK

Dazed_and_C0nfused said:

PawelK said:

Hello all.

I haven't been on here for a while and I'm sure this subject has been mulled over multiple times but I seem to be missing some trick. 
So far, I understood that the tax free amount you get (500vs1,000) depends on your TAXABLE income and not gross. But lately I was surprised when HMRC messaged me that I owe some tax and when I checked the breakdown, it shows my limit being only £500.

However, from my gross income of roughly 60k, my pension contributions were taking me to around 48k annual taxable income (so below 52,700) hence I was certain my tax free interest cap would be 1,000. 

So, I am either in wrong or HMRC possibly made a mistake although their breakdown of my earnings seem roughly correct. 

Please advise as simply as possible. 😆

Most pension contributions have no impact on your taxable income.

What method did you use to get money into your pension?

If it was relief at source then what does your P60 show your taxable earnings/pension to be?

Hi. 

I just checked and yes, my P45 is showing the amount closer to 59k which was my annual salary (gross) and what HMRC took for their calculations. However, I have been making substantial pension contributions (14%) through salary sacrifice so I thought this will reduce my taxable income from 59kto 51k which would be still within the basic rate tax and giving me a 1,000 tax free allowance on interest and not 500. 

PawelK

surreysaver said:

Don't forget that you need to add interest earned to your taxable income too (unless its in an ISA). This could tip you into the 40% bracket if you're close to it 

I haven't earned enough to make this difference although it was just over 1k so I was expecting to only be taxed on whatever was over 1k at 20% but it looks like my pension contributions didn't make any difference in this regard. 

Dazed_and_C0nfused

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Hello all.

I haven't been on here for a while and I'm sure this subject has been mulled over multiple times but I seem to be missing some trick. 
So far, I understood that the tax free amount you get (500vs1,000) depends on your TAXABLE income and not gross. But lately I was surprised when HMRC messaged me that I owe some tax and when I checked the breakdown, it shows my limit being only £500.

However, from my gross income of roughly 60k, my pension contributions were taking me to around 48k annual taxable income (so below 52,700) hence I was certain my tax free interest cap would be 1,000. 

So, I am either in wrong or HMRC possibly made a mistake although their breakdown of my earnings seem roughly correct. 

Please advise as simply as possible. 😆

Most pension contributions have no impact on your taxable income.

What method did you use to get money into your pension?

If it was relief at source then what does your P60 show your taxable earnings/pension to be?

Hi. 

I just checked and yes, my P45 is showing the amount closer to 59k which was my annual salary (gross) and what HMRC took for their calculations. However, I have been making substantial pension contributions (14%) through salary sacrifice so I thought this will reduce my taxable income from 59kto 51k which would be still within the basic rate tax and giving me a 1,000 tax free allowance on interest and not 500. 

Salary sacrifice is where you don't contribute to a pension so there is nothing for you to claim or tell HMRC about.

You are agreeing to a reduced salary in return for extra employer contributions.  But as you don't have that salary anymore you don't pay tax (or NI) on it.

Have you checked your pension account to make sure employer contributions, with no pension tax relief, are being added?

Is it possible that your salary is closer to £70k and post sacrifice the £59k is correct?

What do your payslips show?  Maybe your employer has made a mistake processing the payroll?