Tax on savings interest

Dazed_and_C0nfused

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

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?

Thank you for your reply. No, my gross salary was around 59k and my monthly pay slips were always showing my 14% contributions deducted from gross. That was making my monthly taxable pay around 4.2k instead of 4.9k so in 12 months time I expected it to be around 50k (4.2x12).

Then this still doesn't make sense.  

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 59k to 51k

You still haven't been contributing anything to a pension but if you have sacrificed £8k of your income for additional employer contributions then you would have expected that to be reflected on your P60 (is the reference to a P45 be used you have changed jobs?).

That would be of far more concern to me than whether the first £500 or £1,000 of your interest is taxed at 0% 😳

My ex employer had a scheme where me contributing 7% was maxing up their contribution of 11%. However. I have increased my part voluntarily from 7 to 14 while back. Yes, P45 means I finished that employment in March. I started new job last week of March which added an extra 1k to the whole tax year after my new contribution to pension of 20% was already deducted). I'm still confused about why my taxable income shows as 58k which is close to my gross salary for the year. That would mean that my monthly salary contribution of 14% didn't make any difference to my taxable income. 

Are you quite certain that the method used by your ex employer was salary sacrifice?

The figures make it seem more like relief at source.  This is where there is no impact on your taxable income but you get basic rate relief added to your pension fund.  So £80 you pay ends up as £100 in the pension.  And the gross contribution increases your basic rate band (if you tell HMRC about the pension).

Am I confusing the terms? If so. I apologise! It's one of the most common benefit (especially since legally established) where upon commencing your employment you can opt in to a workplace pension where employer contribute to your pot (I think legally it is minimum of 3%) and an employee contributed 5%? In many companies this is staggered so the more you contribute the more, up to certain cap, your employer puts in as well. 

I am pretty sure my payslips where always showing my gross salary, less my pension contribution and the difference was my taxable income. 

That is auto enrolment.

What you need to check is the method used to get money into the pension.

You are saying it is salary sacrifice and that is where you have agreed to have a reduced salary in return for extra employer contributions to your pension.

A lot of auto enrolment schemes use relief at source, which is where you pay a net contribution and the pension company adds basic rate tax relief.

If it is relief at source then you may well be due a tax refund as you look to be entitled to some higher rate relief.

But you 100% have to understand the method used for the tax year in question (2024/25?) before doing anything else.

In that case it's definitely relief at source. Does this method (by increasing my %) have no impact on my taxable income?

No, no impact whatsoever.

But if your tax calculation shows you have paid higher rate tax in the tax year you have paid some relief at source contributions then you are entitled to an increased basic rate band.

For example the standard basic rate band in 2024/25 was £37,700 and if you contributed £8,000 gross (£6,400 you paid plus £1,609 which the pension company added in basic rate tax relief) then your basic rate band would be increased to £45,700.

You can make a claim on gov.uk.

https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

Note any higher rate tax saving benefits you, it is NOT added to your pension fund.

If my contributions would extend my basic rate band to 45,700 (assuming this is without 12,570 tax free allowance), that means that I just marginally exceeded the interest tax free threshold as my taxable income is shown as 58,700 and the above would add up to 58,270. Am I right?

In that case you would still be deemed a higher rate payer and only have £500 interest taxed at 0%.

But how much income does the calculation show was taxed at 40%?  Most of that would change to being taxed at 20%, far more beneficial to you than the extra £500 interest being taxed at 0% aspect!

And what was your gross relief at source contribution in the tax year involved?

PawelK

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

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?

Thank you for your reply. No, my gross salary was around 59k and my monthly pay slips were always showing my 14% contributions deducted from gross. That was making my monthly taxable pay around 4.2k instead of 4.9k so in 12 months time I expected it to be around 50k (4.2x12).

Then this still doesn't make sense.  

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 59k to 51k

You still haven't been contributing anything to a pension but if you have sacrificed £8k of your income for additional employer contributions then you would have expected that to be reflected on your P60 (is the reference to a P45 be used you have changed jobs?).

That would be of far more concern to me than whether the first £500 or £1,000 of your interest is taxed at 0% 😳

My ex employer had a scheme where me contributing 7% was maxing up their contribution of 11%. However. I have increased my part voluntarily from 7 to 14 while back. Yes, P45 means I finished that employment in March. I started new job last week of March which added an extra 1k to the whole tax year after my new contribution to pension of 20% was already deducted). I'm still confused about why my taxable income shows as 58k which is close to my gross salary for the year. That would mean that my monthly salary contribution of 14% didn't make any difference to my taxable income. 

Are you quite certain that the method used by your ex employer was salary sacrifice?

The figures make it seem more like relief at source.  This is where there is no impact on your taxable income but you get basic rate relief added to your pension fund.  So £80 you pay ends up as £100 in the pension.  And the gross contribution increases your basic rate band (if you tell HMRC about the pension).

Am I confusing the terms? If so. I apologise! It's one of the most common benefit (especially since legally established) where upon commencing your employment you can opt in to a workplace pension where employer contribute to your pot (I think legally it is minimum of 3%) and an employee contributed 5%? In many companies this is staggered so the more you contribute the more, up to certain cap, your employer puts in as well. 

I am pretty sure my payslips where always showing my gross salary, less my pension contribution and the difference was my taxable income. 

That is auto enrolment.

What you need to check is the method used to get money into the pension.

You are saying it is salary sacrifice and that is where you have agreed to have a reduced salary in return for extra employer contributions to your pension.

A lot of auto enrolment schemes use relief at source, which is where you pay a net contribution and the pension company adds basic rate tax relief.

If it is relief at source then you may well be due a tax refund as you look to be entitled to some higher rate relief.

But you 100% have to understand the method used for the tax year in question (2024/25?) before doing anything else.

In that case it's definitely relief at source. Does this method (by increasing my %) have no impact on my taxable income?

No, no impact whatsoever.

But if your tax calculation shows you have paid higher rate tax in the tax year you have paid some relief at source contributions then you are entitled to an increased basic rate band.

For example the standard basic rate band in 2024/25 was £37,700 and if you contributed £8,000 gross (£6,400 you paid plus £1,609 which the pension company added in basic rate tax relief) then your basic rate band would be increased to £45,700.

You can make a claim on gov.uk.

https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

Note any higher rate tax saving benefits you, it is NOT added to your pension fund.

If my contributions would extend my basic rate band to 45,700 (assuming this is without 12,570 tax free allowance), that means that I just marginally exceeded the interest tax free threshold as my taxable income is shown as 58,700 and the above would add up to 58,270. Am I right?

In that case you would still be deemed a higher rate payer and only have £500 interest taxed at 0%.

But how much income does the calculation show was taxed at 40%?  Most of that would change to being taxed at 20%, far more beneficial to you than the extra £500 interest being taxed at 0% aspect!

And what was your gross relief at source contribution in the tax year involved?

The breakdown shows as follows:
60.8k total income 
Less 12.57k tax free
Taxable income 48.3k
Income tax:
500 PSA - 0
37,700 at 20%
10,112 at 40%
The end result is that the tax from the above is higher by over £200 than what I already paid.

On another note, if in this tax year my salary is 60k and I contribute 12k via relief at source (20%) plus 5% from my employer, I understand I will again have only 500 PSA for tax year 25/26?

Dazed_and_C0nfused

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

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?

Thank you for your reply. No, my gross salary was around 59k and my monthly pay slips were always showing my 14% contributions deducted from gross. That was making my monthly taxable pay around 4.2k instead of 4.9k so in 12 months time I expected it to be around 50k (4.2x12).

Then this still doesn't make sense.  

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 59k to 51k

You still haven't been contributing anything to a pension but if you have sacrificed £8k of your income for additional employer contributions then you would have expected that to be reflected on your P60 (is the reference to a P45 be used you have changed jobs?).

That would be of far more concern to me than whether the first £500 or £1,000 of your interest is taxed at 0% 😳

My ex employer had a scheme where me contributing 7% was maxing up their contribution of 11%. However. I have increased my part voluntarily from 7 to 14 while back. Yes, P45 means I finished that employment in March. I started new job last week of March which added an extra 1k to the whole tax year after my new contribution to pension of 20% was already deducted). I'm still confused about why my taxable income shows as 58k which is close to my gross salary for the year. That would mean that my monthly salary contribution of 14% didn't make any difference to my taxable income. 

Are you quite certain that the method used by your ex employer was salary sacrifice?

The figures make it seem more like relief at source.  This is where there is no impact on your taxable income but you get basic rate relief added to your pension fund.  So £80 you pay ends up as £100 in the pension.  And the gross contribution increases your basic rate band (if you tell HMRC about the pension).

Am I confusing the terms? If so. I apologise! It's one of the most common benefit (especially since legally established) where upon commencing your employment you can opt in to a workplace pension where employer contribute to your pot (I think legally it is minimum of 3%) and an employee contributed 5%? In many companies this is staggered so the more you contribute the more, up to certain cap, your employer puts in as well. 

I am pretty sure my payslips where always showing my gross salary, less my pension contribution and the difference was my taxable income. 

That is auto enrolment.

What you need to check is the method used to get money into the pension.

You are saying it is salary sacrifice and that is where you have agreed to have a reduced salary in return for extra employer contributions to your pension.

A lot of auto enrolment schemes use relief at source, which is where you pay a net contribution and the pension company adds basic rate tax relief.

If it is relief at source then you may well be due a tax refund as you look to be entitled to some higher rate relief.

But you 100% have to understand the method used for the tax year in question (2024/25?) before doing anything else.

In that case it's definitely relief at source. Does this method (by increasing my %) have no impact on my taxable income?

No, no impact whatsoever.

But if your tax calculation shows you have paid higher rate tax in the tax year you have paid some relief at source contributions then you are entitled to an increased basic rate band.

For example the standard basic rate band in 2024/25 was £37,700 and if you contributed £8,000 gross (£6,400 you paid plus £1,609 which the pension company added in basic rate tax relief) then your basic rate band would be increased to £45,700.

You can make a claim on gov.uk.

https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

Note any higher rate tax saving benefits you, it is NOT added to your pension fund.

If my contributions would extend my basic rate band to 45,700 (assuming this is without 12,570 tax free allowance), that means that I just marginally exceeded the interest tax free threshold as my taxable income is shown as 58,700 and the above would add up to 58,270. Am I right?

In that case you would still be deemed a higher rate payer and only have £500 interest taxed at 0%.

But how much income does the calculation show was taxed at 40%?  Most of that would change to being taxed at 20%, far more beneficial to you than the extra £500 interest being taxed at 0% aspect!

And what was your gross relief at source contribution in the tax year involved?

The breakdown shows as follows:
60.8k total income 
Less 12.57k tax free
Taxable income 48.3k
Income tax:
500 PSA - 0
37,700 at 20%
10,112 at 40%
The end result is that the tax from the above is higher by over £200 than what I already paid.

On another note, if in this tax year my salary is 60k and I contribute 12k via relief at source (20%) plus 5% from my employer, I understand I will again have only 500 PSA for tax year 25/26?

Do you have any idea how much you paid in that tax year (the gross amount)?  

It could be the higher rate relief you are entitled to far outweighs that £200 and you could get over £1k back as a tax refund.

What your employer contributes is of no relevance.  

Not sure why you are so focused on the interest to be honest, the higher rate tax relief on £12k could easily be worth £2k+ in the current tax year.

PawelK

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

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?

Thank you for your reply. No, my gross salary was around 59k and my monthly pay slips were always showing my 14% contributions deducted from gross. That was making my monthly taxable pay around 4.2k instead of 4.9k so in 12 months time I expected it to be around 50k (4.2x12).

Then this still doesn't make sense.  

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 59k to 51k

You still haven't been contributing anything to a pension but if you have sacrificed £8k of your income for additional employer contributions then you would have expected that to be reflected on your P60 (is the reference to a P45 be used you have changed jobs?).

That would be of far more concern to me than whether the first £500 or £1,000 of your interest is taxed at 0% 😳

My ex employer had a scheme where me contributing 7% was maxing up their contribution of 11%. However. I have increased my part voluntarily from 7 to 14 while back. Yes, P45 means I finished that employment in March. I started new job last week of March which added an extra 1k to the whole tax year after my new contribution to pension of 20% was already deducted). I'm still confused about why my taxable income shows as 58k which is close to my gross salary for the year. That would mean that my monthly salary contribution of 14% didn't make any difference to my taxable income. 

Are you quite certain that the method used by your ex employer was salary sacrifice?

The figures make it seem more like relief at source.  This is where there is no impact on your taxable income but you get basic rate relief added to your pension fund.  So £80 you pay ends up as £100 in the pension.  And the gross contribution increases your basic rate band (if you tell HMRC about the pension).

Am I confusing the terms? If so. I apologise! It's one of the most common benefit (especially since legally established) where upon commencing your employment you can opt in to a workplace pension where employer contribute to your pot (I think legally it is minimum of 3%) and an employee contributed 5%? In many companies this is staggered so the more you contribute the more, up to certain cap, your employer puts in as well. 

I am pretty sure my payslips where always showing my gross salary, less my pension contribution and the difference was my taxable income. 

That is auto enrolment.

What you need to check is the method used to get money into the pension.

You are saying it is salary sacrifice and that is where you have agreed to have a reduced salary in return for extra employer contributions to your pension.

A lot of auto enrolment schemes use relief at source, which is where you pay a net contribution and the pension company adds basic rate tax relief.

If it is relief at source then you may well be due a tax refund as you look to be entitled to some higher rate relief.

But you 100% have to understand the method used for the tax year in question (2024/25?) before doing anything else.

In that case it's definitely relief at source. Does this method (by increasing my %) have no impact on my taxable income?

No, no impact whatsoever.

But if your tax calculation shows you have paid higher rate tax in the tax year you have paid some relief at source contributions then you are entitled to an increased basic rate band.

For example the standard basic rate band in 2024/25 was £37,700 and if you contributed £8,000 gross (£6,400 you paid plus £1,609 which the pension company added in basic rate tax relief) then your basic rate band would be increased to £45,700.

You can make a claim on gov.uk.

https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

Note any higher rate tax saving benefits you, it is NOT added to your pension fund.

If my contributions would extend my basic rate band to 45,700 (assuming this is without 12,570 tax free allowance), that means that I just marginally exceeded the interest tax free threshold as my taxable income is shown as 58,700 and the above would add up to 58,270. Am I right?

In that case you would still be deemed a higher rate payer and only have £500 interest taxed at 0%.

But how much income does the calculation show was taxed at 40%?  Most of that would change to being taxed at 20%, far more beneficial to you than the extra £500 interest being taxed at 0% aspect!

And what was your gross relief at source contribution in the tax year involved?

The breakdown shows as follows:
60.8k total income 
Less 12.57k tax free
Taxable income 48.3k
Income tax:
500 PSA - 0
37,700 at 20%
10,112 at 40%
The end result is that the tax from the above is higher by over £200 than what I already paid.

On another note, if in this tax year my salary is 60k and I contribute 12k via relief at source (20%) plus 5% from my employer, I understand I will again have only 500 PSA for tax year 25/26?

Do you have any idea how much you paid in that tax year (the gross amount)?  

It could be the higher rate relief you are entitled to far outweighs that £200 and you could get over £1k back as a tax refund.

What your employer contributes is of no relevance.  

Not sure why you are so focused on the interest to be honest, the higher rate tax relief on £12k could easily be worth £2k+ in the current tax year.

Yes, I paid £220 less than what HMRC shows me should be paid (from the above example, 20% from 37,700 and 40% from 10,112. 

I focused on PSA because my taxable interest earnings annually are just over 1,000 so I thought that if I contribute enough to my pension, it would bring my taxable income down, giving me 1,000 PSA which in turn would minimise my tax liability completely and whatever is over 1,000 would be taxed at 20% and not 40.

DRS1

OP Why are you resolutely refusing to say what your personal pension contributions are?
And are we talking about this current tax year or last tax year?  If it is the current tax year you may be able to increase your contributions enough to get your total taxable income below the raised higher rate threshold (and get back to that £1000 PSA)

Dazed_and_C0nfused

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

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?

Thank you for your reply. No, my gross salary was around 59k and my monthly pay slips were always showing my 14% contributions deducted from gross. That was making my monthly taxable pay around 4.2k instead of 4.9k so in 12 months time I expected it to be around 50k (4.2x12).

Then this still doesn't make sense.  

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 59k to 51k

You still haven't been contributing anything to a pension but if you have sacrificed £8k of your income for additional employer contributions then you would have expected that to be reflected on your P60 (is the reference to a P45 be used you have changed jobs?).

That would be of far more concern to me than whether the first £500 or £1,000 of your interest is taxed at 0% 😳

My ex employer had a scheme where me contributing 7% was maxing up their contribution of 11%. However. I have increased my part voluntarily from 7 to 14 while back. Yes, P45 means I finished that employment in March. I started new job last week of March which added an extra 1k to the whole tax year after my new contribution to pension of 20% was already deducted). I'm still confused about why my taxable income shows as 58k which is close to my gross salary for the year. That would mean that my monthly salary contribution of 14% didn't make any difference to my taxable income. 

Are you quite certain that the method used by your ex employer was salary sacrifice?

The figures make it seem more like relief at source.  This is where there is no impact on your taxable income but you get basic rate relief added to your pension fund.  So £80 you pay ends up as £100 in the pension.  And the gross contribution increases your basic rate band (if you tell HMRC about the pension).

Am I confusing the terms? If so. I apologise! It's one of the most common benefit (especially since legally established) where upon commencing your employment you can opt in to a workplace pension where employer contribute to your pot (I think legally it is minimum of 3%) and an employee contributed 5%? In many companies this is staggered so the more you contribute the more, up to certain cap, your employer puts in as well. 

I am pretty sure my payslips where always showing my gross salary, less my pension contribution and the difference was my taxable income. 

That is auto enrolment.

What you need to check is the method used to get money into the pension.

You are saying it is salary sacrifice and that is where you have agreed to have a reduced salary in return for extra employer contributions to your pension.

A lot of auto enrolment schemes use relief at source, which is where you pay a net contribution and the pension company adds basic rate tax relief.

If it is relief at source then you may well be due a tax refund as you look to be entitled to some higher rate relief.

But you 100% have to understand the method used for the tax year in question (2024/25?) before doing anything else.

In that case it's definitely relief at source. Does this method (by increasing my %) have no impact on my taxable income?

No, no impact whatsoever.

But if your tax calculation shows you have paid higher rate tax in the tax year you have paid some relief at source contributions then you are entitled to an increased basic rate band.

For example the standard basic rate band in 2024/25 was £37,700 and if you contributed £8,000 gross (£6,400 you paid plus £1,609 which the pension company added in basic rate tax relief) then your basic rate band would be increased to £45,700.

You can make a claim on gov.uk.

https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

Note any higher rate tax saving benefits you, it is NOT added to your pension fund.

If my contributions would extend my basic rate band to 45,700 (assuming this is without 12,570 tax free allowance), that means that I just marginally exceeded the interest tax free threshold as my taxable income is shown as 58,700 and the above would add up to 58,270. Am I right?

In that case you would still be deemed a higher rate payer and only have £500 interest taxed at 0%.

But how much income does the calculation show was taxed at 40%?  Most of that would change to being taxed at 20%, far more beneficial to you than the extra £500 interest being taxed at 0% aspect!

And what was your gross relief at source contribution in the tax year involved?

The breakdown shows as follows:
60.8k total income 
Less 12.57k tax free
Taxable income 48.3k
Income tax:
500 PSA - 0
37,700 at 20%
10,112 at 40%
The end result is that the tax from the above is higher by over £200 than what I already paid.

On another note, if in this tax year my salary is 60k and I contribute 12k via relief at source (20%) plus 5% from my employer, I understand I will again have only 500 PSA for tax year 25/26?

Do you have any idea how much you paid in that tax year (the gross amount)?  

It could be the higher rate relief you are entitled to far outweighs that £200 and you could get over £1k back as a tax refund.

What your employer contributes is of no relevance.  

Not sure why you are so focused on the interest to be honest, the higher rate tax relief on £12k could easily be worth £2k+ in the current tax year.

Yes, I paid £220 less than what HMRC shows me should be paid (from the above example, 20% from 37,700 and 40% from 10,112. 

I focused on PSA because my taxable interest earnings annually are just over 1,000 so I thought that if I contribute enough to my pension, it would bring my taxable income down, giving me 1,000 PSA which in turn would minimise my tax liability completely and whatever is over 1,000 would be taxed at 20% and not 40.

But that is a drop in the ocean compared to the higher rate relief you don't seem overly bothered about 🤷

And sorting one will resolve the other (if the figures stack up).

PawelK

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

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?

Thank you for your reply. No, my gross salary was around 59k and my monthly pay slips were always showing my 14% contributions deducted from gross. That was making my monthly taxable pay around 4.2k instead of 4.9k so in 12 months time I expected it to be around 50k (4.2x12).

Then this still doesn't make sense.  

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 59k to 51k

You still haven't been contributing anything to a pension but if you have sacrificed £8k of your income for additional employer contributions then you would have expected that to be reflected on your P60 (is the reference to a P45 be used you have changed jobs?).

That would be of far more concern to me than whether the first £500 or £1,000 of your interest is taxed at 0% 😳

My ex employer had a scheme where me contributing 7% was maxing up their contribution of 11%. However. I have increased my part voluntarily from 7 to 14 while back. Yes, P45 means I finished that employment in March. I started new job last week of March which added an extra 1k to the whole tax year after my new contribution to pension of 20% was already deducted). I'm still confused about why my taxable income shows as 58k which is close to my gross salary for the year. That would mean that my monthly salary contribution of 14% didn't make any difference to my taxable income. 

Are you quite certain that the method used by your ex employer was salary sacrifice?

The figures make it seem more like relief at source.  This is where there is no impact on your taxable income but you get basic rate relief added to your pension fund.  So £80 you pay ends up as £100 in the pension.  And the gross contribution increases your basic rate band (if you tell HMRC about the pension).

Am I confusing the terms? If so. I apologise! It's one of the most common benefit (especially since legally established) where upon commencing your employment you can opt in to a workplace pension where employer contribute to your pot (I think legally it is minimum of 3%) and an employee contributed 5%? In many companies this is staggered so the more you contribute the more, up to certain cap, your employer puts in as well. 

I am pretty sure my payslips where always showing my gross salary, less my pension contribution and the difference was my taxable income. 

That is auto enrolment.

What you need to check is the method used to get money into the pension.

You are saying it is salary sacrifice and that is where you have agreed to have a reduced salary in return for extra employer contributions to your pension.

A lot of auto enrolment schemes use relief at source, which is where you pay a net contribution and the pension company adds basic rate tax relief.

If it is relief at source then you may well be due a tax refund as you look to be entitled to some higher rate relief.

But you 100% have to understand the method used for the tax year in question (2024/25?) before doing anything else.

In that case it's definitely relief at source. Does this method (by increasing my %) have no impact on my taxable income?

No, no impact whatsoever.

But if your tax calculation shows you have paid higher rate tax in the tax year you have paid some relief at source contributions then you are entitled to an increased basic rate band.

For example the standard basic rate band in 2024/25 was £37,700 and if you contributed £8,000 gross (£6,400 you paid plus £1,609 which the pension company added in basic rate tax relief) then your basic rate band would be increased to £45,700.

You can make a claim on gov.uk.

https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

Note any higher rate tax saving benefits you, it is NOT added to your pension fund.

If my contributions would extend my basic rate band to 45,700 (assuming this is without 12,570 tax free allowance), that means that I just marginally exceeded the interest tax free threshold as my taxable income is shown as 58,700 and the above would add up to 58,270. Am I right?

In that case you would still be deemed a higher rate payer and only have £500 interest taxed at 0%.

But how much income does the calculation show was taxed at 40%?  Most of that would change to being taxed at 20%, far more beneficial to you than the extra £500 interest being taxed at 0% aspect!

And what was your gross relief at source contribution in the tax year involved?

The breakdown shows as follows:
60.8k total income 
Less 12.57k tax free
Taxable income 48.3k
Income tax:
500 PSA - 0
37,700 at 20%
10,112 at 40%
The end result is that the tax from the above is higher by over £200 than what I already paid.

On another note, if in this tax year my salary is 60k and I contribute 12k via relief at source (20%) plus 5% from my employer, I understand I will again have only 500 PSA for tax year 25/26?

Do you have any idea how much you paid in that tax year (the gross amount)?  

It could be the higher rate relief you are entitled to far outweighs that £200 and you could get over £1k back as a tax refund.

What your employer contributes is of no relevance.  

Not sure why you are so focused on the interest to be honest, the higher rate tax relief on £12k could easily be worth £2k+ in the current tax year.

Yes, I paid £220 less than what HMRC shows me should be paid (from the above example, 20% from 37,700 and 40% from 10,112. 

I focused on PSA because my taxable interest earnings annually are just over 1,000 so I thought that if I contribute enough to my pension, it would bring my taxable income down, giving me 1,000 PSA which in turn would minimise my tax liability completely and whatever is over 1,000 would be taxed at 20% and not 40.

But that is a drop in the ocean compared to the higher rate relief you don't seem overly bothered about 🤷

And sorting one will resolve the other (if the figures stack up).

I'm not getting what you're saying about "higher rate relief I'm getting" rather than not being bothered. 🫣

PawelK

DRS1 said:

OP Why are you resolutely refusing to say what your personal pension contributions are?
And are we talking about this current tax year or last tax year?  If it is the current tax year you may be able to increase your contributions enough to get your total taxable income below the raised higher rate threshold (and get back to that £1000 PSA)

Hmmm, i think you haven't read all the posts in this thread because I quite clearly mentioned my salary and % of contributions I was making. I also mentioned the amount which was very close to what Dazed mentioned. And we are talking about 24/25. How could HMRC notify me about tax owed before the end of the current tax year? 😊

Dazed_and_C0nfused

PawelK said:

DRS1 said:

OP Why are you resolutely refusing to say what your personal pension contributions are?
And are we talking about this current tax year or last tax year?  If it is the current tax year you may be able to increase your contributions enough to get your total taxable income below the raised higher rate threshold (and get back to that £1000 PSA)

Hmmm, i think you haven't read all the posts in this thread because I quite clearly mentioned my salary and % of contributions I was making. I also mentioned the amount which was very close to what Dazed mentioned. And we are talking about 24/25. How could HMRC notify me about tax owed before the end of the current tax year? 😊

You could get a new (lower) tax code if HMRC estimate you owe tax for the current tax year.  It would only be an estimate but it can still happen.

Dazed_and_C0nfused

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

PawelK said:

Dazed_and_C0nfused said:

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?

Thank you for your reply. No, my gross salary was around 59k and my monthly pay slips were always showing my 14% contributions deducted from gross. That was making my monthly taxable pay around 4.2k instead of 4.9k so in 12 months time I expected it to be around 50k (4.2x12).

Then this still doesn't make sense.  

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 59k to 51k

You still haven't been contributing anything to a pension but if you have sacrificed £8k of your income for additional employer contributions then you would have expected that to be reflected on your P60 (is the reference to a P45 be used you have changed jobs?).

That would be of far more concern to me than whether the first £500 or £1,000 of your interest is taxed at 0% 😳

My ex employer had a scheme where me contributing 7% was maxing up their contribution of 11%. However. I have increased my part voluntarily from 7 to 14 while back. Yes, P45 means I finished that employment in March. I started new job last week of March which added an extra 1k to the whole tax year after my new contribution to pension of 20% was already deducted). I'm still confused about why my taxable income shows as 58k which is close to my gross salary for the year. That would mean that my monthly salary contribution of 14% didn't make any difference to my taxable income. 

Are you quite certain that the method used by your ex employer was salary sacrifice?

The figures make it seem more like relief at source.  This is where there is no impact on your taxable income but you get basic rate relief added to your pension fund.  So £80 you pay ends up as £100 in the pension.  And the gross contribution increases your basic rate band (if you tell HMRC about the pension).

Am I confusing the terms? If so. I apologise! It's one of the most common benefit (especially since legally established) where upon commencing your employment you can opt in to a workplace pension where employer contribute to your pot (I think legally it is minimum of 3%) and an employee contributed 5%? In many companies this is staggered so the more you contribute the more, up to certain cap, your employer puts in as well. 

I am pretty sure my payslips where always showing my gross salary, less my pension contribution and the difference was my taxable income. 

That is auto enrolment.

What you need to check is the method used to get money into the pension.

You are saying it is salary sacrifice and that is where you have agreed to have a reduced salary in return for extra employer contributions to your pension.

A lot of auto enrolment schemes use relief at source, which is where you pay a net contribution and the pension company adds basic rate tax relief.

If it is relief at source then you may well be due a tax refund as you look to be entitled to some higher rate relief.

But you 100% have to understand the method used for the tax year in question (2024/25?) before doing anything else.

In that case it's definitely relief at source. Does this method (by increasing my %) have no impact on my taxable income?

No, no impact whatsoever.

But if your tax calculation shows you have paid higher rate tax in the tax year you have paid some relief at source contributions then you are entitled to an increased basic rate band.

For example the standard basic rate band in 2024/25 was £37,700 and if you contributed £8,000 gross (£6,400 you paid plus £1,609 which the pension company added in basic rate tax relief) then your basic rate band would be increased to £45,700.

You can make a claim on gov.uk.

https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments

Note any higher rate tax saving benefits you, it is NOT added to your pension fund.

If my contributions would extend my basic rate band to 45,700 (assuming this is without 12,570 tax free allowance), that means that I just marginally exceeded the interest tax free threshold as my taxable income is shown as 58,700 and the above would add up to 58,270. Am I right?

In that case you would still be deemed a higher rate payer and only have £500 interest taxed at 0%.

But how much income does the calculation show was taxed at 40%?  Most of that would change to being taxed at 20%, far more beneficial to you than the extra £500 interest being taxed at 0% aspect!

And what was your gross relief at source contribution in the tax year involved?

The breakdown shows as follows:
60.8k total income 
Less 12.57k tax free
Taxable income 48.3k
Income tax:
500 PSA - 0
37,700 at 20%
10,112 at 40%
The end result is that the tax from the above is higher by over £200 than what I already paid.

On another note, if in this tax year my salary is 60k and I contribute 12k via relief at source (20%) plus 5% from my employer, I understand I will again have only 500 PSA for tax year 25/26?

Do you have any idea how much you paid in that tax year (the gross amount)?  

It could be the higher rate relief you are entitled to far outweighs that £200 and you could get over £1k back as a tax refund.

What your employer contributes is of no relevance.  

Not sure why you are so focused on the interest to be honest, the higher rate tax relief on £12k could easily be worth £2k+ in the current tax year.

Yes, I paid £220 less than what HMRC shows me should be paid (from the above example, 20% from 37,700 and 40% from 10,112. 

I focused on PSA because my taxable interest earnings annually are just over 1,000 so I thought that if I contribute enough to my pension, it would bring my taxable income down, giving me 1,000 PSA which in turn would minimise my tax liability completely and whatever is over 1,000 would be taxed at 20% and not 40.

But that is a drop in the ocean compared to the higher rate relief you don't seem overly bothered about 🤷

And sorting one will resolve the other (if the figures stack up).

I'm not getting what you're saying about "higher rate relief I'm getting" rather than not being bothered. 🫣

What would happen to your tax liability for 2024/25 if you replaced the £37,700 taxed at 20% with the correct, increased, basic rate band?

You would pay a lot more tax at 20%.  But a lot less at 40% 😉