Salary sacrifice with reduced tax code?

mrklaw

so my HR department continues to mess up what should be a straightforward salary by not declaring medical insurance in a timely manner so my latest tax code is now 8111 for the rest of the year - hopefully sorts itself out by April next year

anyway - am I right in thinking if my allowance is 8111 my basic rate band remains 37700? So I’d start paying 40% at 37700+8122=45,822 rather than 50270?

I’m currently sacrificing down close to basic rate band assuming 50270. So if all the above is correct do I have an opportunity to sacrifice a further 5k or so at 42% relief for this year?

Dazed_and_C0nfused

Your tax code is irrelevant, it's simply trying to collect the right tax during the year.

And unless your adjusted net income is above £100k you will still have the standard Personal Allowance (assuming Marriage Allowance isn't a factor).

molerat

Your tax code and your tax allowance are two entirely separate things. The amount of tax you save is dependent on your income and not the code in use, the code only determines how much tax PAYE deducts. You need to work out how much tax you are due to pay under the current arrangements and how much tax will be due with a £5K salary reduction, the tax owed due to the medical insurance is separate from the tax due on income.

DRS1

I am going to show my ignorance of benefits in kind but if you have medical insurance and that is a taxable benefit in kind doesn't that mean an amount is calculated for the benefit received and you are taxed as if that amount was part of your income for the year? If so, shouldn't you make allowance for that when working out your desired level of pension contributions to get down to basic rate in the same way you would make allowance for taxable savings interest?

squirrelpie

so my HR department continues to mess up what should be a
straightforward salary by not declaring medical insurance in a timely
manner so my latest tax code is now 8111 for the rest of the year -
hopefully sorts itself out by April next year

8111 is a very high tax code, higher even than the basic code of 1257L. Are you sure it is right? It means you can earn £81,110 before paying any tax.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82079995#Comment_82079995

I suspect the op meant to put 811L

Marcon

so my HR department continues to mess up what should be a straightforward salary by not declaring medical insurance in a timely manner so my latest tax code is now 8111 for the rest of the year - hopefully sorts itself out by April next year

How have they 'messed up'? If this BIK is reported on a P11D, then issuing that by 6 July following the tax year end is the correct procedure and they will have followed the same process each year, so not sure why you've not yet clocked that's what happens?

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82080095#Comment_82080095

when I rang HMRC they said my employer had not updated either the correct amount (last year) or any amount (the previous year) so its been a rolling catch up for some reason.

so is my higher rate band still 50270 - they’ll just take more at 20% from the lower amount?

squirrelpie

https://forums.moneysavingexpert.com/discussion/comment/82080076#Comment_82080076

They did it twice, so I thought I'd query it. It would be nice to have them acknowledge the typo, if it is.

Marcon

https://forums.moneysavingexpert.com/discussion/comment/82080102#Comment_82080102

Ah - apologies. That does indeed sound like they've messed up, but it's quite hard to understand why. Are you by any chance using salary sacrifice to pay for your medical insurance? If so, that is more complex, since you end up paying income tax on the benefit using Optional Remuneration Arrangements (OpRA), but get a saving on NI.

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82080113#Comment_82080113

apologies yes my mistake. Mix of codes on the HMRC letter and their explanation which uses the actual amounts.