Do tax codes go negative between £100,000 and £125,000?

TaxIsVeryTaxing

I can't find the answer to this on the government website. But it seems like such a simple question.

I currently have a tax code of 828L, because HMRC are recovering underpaid tax from previous years.

A redundancy payment will push my taxable income for 25/26 into the 60% tax trap. (Sadness)

I understand that my tax code will be tapered down by £1 for every £2 over the £100,000.

But does this stop at zero? Or does it go negative?

To be clear, if my taxable income is £125,140 will my new tax code be 0L or K429?

Isthisforreal99

Yes, it will go negative - but if you are made reduntant will there be a PAYE source to operate it against?

You could of course plough more into your pension to avoid or mitigate the 'tax trap'

TaxIsVeryTaxing

Isthisforreal99 said:

Yes, it will go negative - but if you are made reduntant will there be a PAYE source to operate it against?

You could of course plough more into your pension to avoid or mitigate the 'tax trap'

Thanks. I will be looking to put as much into the pension as possible in an attempt to avoid the "tax trap". I'm trying to work out how much tax will be taken in my final paycheck which is why I need to understand the code. Unfortunately my employer are being very unhelpful and won't allow me to make a final pension AVC from my pretax pay. Instead I must make the AVC from my post-tax pay and then claim the tax back myself.

Isthisforreal99

TaxIsVeryTaxing said:

Isthisforreal99 said:

Yes, it will go negative - but if you are made reduntant will there be a PAYE source to operate it against?

You could of course plough more into your pension to avoid or mitigate the 'tax trap'

Thanks. I will be looking to put as much into the pension as possible in an attempt to avoid the "tax trap". I'm trying to work out how much tax will be taken in my final paycheck which is why I need to understand the code. Unfortunately my employer are being very unhelpful and won't allow me to make a final pension AVC from my pretax pay. Instead I must make the AVC from my post-tax pay and then claim the tax back myself.

Problem is HMRC will not adjust your tax code until the redundancy payment is reported to them, by which time you will have left so the tax owing would be calculated after the end of thw tax year, unless you take up a new job before then.

molerat

Unfortunately my employer are being very unhelpful and won't allow me to make a final pension AVC from my pretax pay. Instead I must make the AVC from my post-tax pay and then claim the tax back myself.

If that is a net pay scheme then you may be opening yourself up to a whole load of misery trying to claim the tax back,  there are several threads on the subject.

Grumpy_chap

TaxIsVeryTaxing said:

A redundancy payment will push my taxable income for 25/26 into the 60% tax trap. 

Have you taken into account that redundancy payments (up to £30k) are usually tax free?
That is the true redundancy value, not PILON etc.
Will the former employer facilitate "redundancy sacrifice" into pension to mitigate the tax liabilities?

monkey-fingers

I was in a similar situation to this earlier in the year and I've paid pretty much no tax on the redundancy payment.
£15k in tax-free shares. £54k into my pension. £30k take home, plus £6k I was taxed on (my last month's salary, which I couldn't avoid).

I would have been comfortably over the £100k. As it is, I'll get a chunky tax refund which I'll use against my business taxes (I'm contracting now).

TaxIsVeryTaxing

Grumpy_chap said:

TaxIsVeryTaxing said:

A redundancy payment will push my taxable income for 25/26 into the 60% tax trap. 

Have you taken into account that redundancy payments (up to £30k) are usually tax free?
That is the true redundancy value, not PILON etc.
Will the former employer facilitate "redundancy sacrifice" into pension to mitigate the tax liabilities?

Sadly, my employer are refusing to use their salary sacrifice scheme for these redundancies. I've no idea why they are being so unhelpful. They've always been a good employer until this point.  (I've already taken the £30k tax free into account).

TaxIsVeryTaxing

molerat said:

Unfortunately my employer are being very unhelpful and won't allow me to make a final pension AVC from my pretax pay. Instead I must make the AVC from my post-tax pay and then claim the tax back myself.

If that is a net pay scheme then you may be opening yourself up to a whole load of misery trying to claim the tax back,  there are several threads on the subject.

That's rather worrying. The scheme is a "salary sacrifice" scheme, which I've just googled and appears to be synonymous with "net pay". Are you able to provide any more details on what problems people have encountered?

Albermarle

TaxIsVeryTaxing said:

molerat said:

Unfortunately my employer are being very unhelpful and won't allow me to make a final pension AVC from my pretax pay. Instead I must make the AVC from my post-tax pay and then claim the tax back myself.

If that is a net pay scheme then you may be opening yourself up to a whole load of misery trying to claim the tax back,  there are several threads on the subject.

That's rather worrying. The scheme is a "salary sacrifice" scheme, which I've just googled and appears to be synonymous with "net pay". Are you able to provide any more details on what problems people have encountered?

There are three ways that pension contributions can be made.

Salary sacrifice - Your actual salary is reduced and the employer makes equivalent contributions to your pension ( along with their own contribution)- You get tax relief automatically by not paying any tax on the sacrificed amount in the first place. You also save on NI .
Net pay - The contributions are taken out of your salary before tax is applied, so again you get the tax relief 'automatically' . The employers contributions are made to your pension separately.
Relief at source - Your contributions come out of your taxed salary/take home pay. The pension provider adds basic rate tax relief to your contributions. If you are a higher rate taxpayer you need to claim the extra relief from HMRC.

Employers can use either of the three systems. If you make a personal payment it is always relief at source.

The problem alluded to in a previous post, is that if your employer uses salsac or net pay, and then you make a personal contribution, the workplace provider/pension may not be set up to add the basic rate tax relief. Then there can be a long hassle with HMRC to get it sorted out.

SO - check with the pension provider in advance that if you make a personal contribution, that they will add basic rate tax relief ( I think most will, but some do not) . If they will not, then the solution is to open a new personal pension/SIPP yourself and add to that instead. 

TaxIsVeryTaxing

Albermarle said:

TaxIsVeryTaxing said:

molerat said:

Unfortunately my employer are being very unhelpful and won't allow me to make a final pension AVC from my pretax pay. Instead I must make the AVC from my post-tax pay and then claim the tax back myself.

If that is a net pay scheme then you may be opening yourself up to a whole load of misery trying to claim the tax back,  there are several threads on the subject.

That's rather worrying. The scheme is a "salary sacrifice" scheme, which I've just googled and appears to be synonymous with "net pay". Are you able to provide any more details on what problems people have encountered?

There are three ways that pension contributions can be made.

Salary sacrifice - Your actual salary is reduced and the employer makes equivalent contributions to your pension ( along with their own contribution)- You get tax relief automatically by not paying any tax on the sacrificed amount in the first place. You also save on NI .
Net pay - The contributions are taken out of your salary before tax is applied, so again you get the tax relief 'automatically' . The employers contributions are made to your pension separately.
Relief at source - Your contributions come out of your taxed salary/take home pay. The pension provider adds basic rate tax relief to your contributions. If you are a higher rate taxpayer you need to claim the extra relief from HMRC.

Employers can use either of the three systems. If you make a personal payment it is always relief at source.

The problem alluded to in a previous post, is that if your employer uses salsac or net pay, and then you make a personal contribution, the workplace provider/pension may not be set up to add the basic rate tax relief. Then there can be a long hassle with HMRC to get it sorted out.

SO - check with the pension provider in advance that if you make a personal contribution, that they will add basic rate tax relief ( I think most will, but some do not) . If they will not, then the solution is to open a new personal pension/SIPP yourself and add to that instead. 

Thank you for taking the time to provide this summary. It is most helpful. In fact, this is starting to ring alarm bells for me now. I have previously spoken to my company's pension provider and they have already stated that "You will not receive any tax relief either via the payroll or from the pension provider, so you will need to
contact HMRC to reclaim any tax relief." - this sounds very much like the situation you have described.