Pension and tax

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Discussion

leemanning

Original Poster:

557 posts

153 months

Wednesday 29th June 2016
quotequote all
Probably a simple answer to this, but I'm unsure.

Let's say you earn £50k p/a that you get paid PAYE. On top of this, let's say you make pension contributions of £10k p/a.

Does this mean that you have effectively earned £60k in that year or £50k?

Just wondering about tax thresholds etc

PurpleMoonlight

22,362 posts

158 months

Wednesday 29th June 2016
quotequote all
If you are making a pension contribution of £10,000, for income tax purposes you have effectively only earned £40,000.

boyse7en

6,738 posts

166 months

Wednesday 29th June 2016
quotequote all
leemanning said:
Probably a simple answer to this, but I'm unsure.

Let's say you earn £50k p/a that you get paid PAYE. On top of this, let's say you make pension contributions of £10k p/a.

Does this mean that you have effectively earned £60k in that year or £50k?

Just wondering about tax thresholds etc
If you're PAYE, earn £50,000 per annum and pay £10,000 into your pension via a salary sacrifice scheme, then your earnings for the year will be £40,000 for tax purposes.

leemanning

Original Poster:

557 posts

153 months

Wednesday 29th June 2016
quotequote all
Sorry maybe I didn't explain myself properly.

Let's say that you've earned £50k. That money has been paid PAYE into your account, you've paid the tax on it and all is sorted.

If you were to then, on top of this amount, be paid £10k that you decide to put into a pension, are you paying tax on your £50k earnings within the threshold as £50k or as £60k.

I appreciate that in this example there aren't thresholds around £50k and £60k

Eric Mc

122,053 posts

266 months

Wednesday 29th June 2016
quotequote all
Are you receiving an additional £10,000 from your employer on top of the salary of £50,000?

Countdown

39,967 posts

197 months

Wednesday 29th June 2016
quotequote all
leemanning said:
Sorry maybe I didn't explain myself properly.

Let's say that you've earned £50k. That money has been paid PAYE into your account, you've paid the tax on it and all is sorted.

If you were to then, on top of this amount, be paid £10k that you decide to put into a pension, are you paying tax on your £50k earnings within the threshold as £50k or as £60k.

I appreciate that in this example there aren't thresholds around £50k and £60k
You should get tax relief at 40% on the £10k you put into your personal pension (at least the bit above £42k). AIUI your pension provider will reclaim 20% from HMRC but you would need to claim the difference by filling in a self assessment form.



leemanning

Original Poster:

557 posts

153 months

Friday 8th July 2016
quotequote all
Eric Mc said:
Are you receiving an additional £10,000 from your employer on top of the salary of £50,000?
Yes that's correct.

Eric Mc

122,053 posts

266 months

Friday 8th July 2016
quotequote all
Well, initially that additional £10,000 is treated as extra salary and you will be taxed on a salary of £60,000.

However, by making a £10,000 contribution to the pension, you will get tax relief on that contribution.

Is the £10,000 removed from your salary before or after PAYE and NI is calculated?

PurpleMoonlight

22,362 posts

158 months

Friday 8th July 2016
quotequote all
leemanning said:
Eric Mc said:
Are you receiving an additional £10,000 from your employer on top of the salary of £50,000?
Yes that's correct.
Talk to your employer to get the £10,000 paid as an employer pension contribution rather than salary and then a personal pension contribution.

They will likely be happy to as they will save employer NI.

Jockman

17,917 posts

161 months

Friday 8th July 2016
quotequote all
PurpleMoonlight said:
leemanning said:
Eric Mc said:
Are you receiving an additional £10,000 from your employer on top of the salary of £50,000?
Yes that's correct.
Talk to your employer to get the £10,000 paid as an employer pension contribution rather than salary and then a personal pension contribution.

They will likely be happy to as they will save employer NI.
This.

Eric Mc

122,053 posts

266 months

Friday 8th July 2016
quotequote all
I thought HMRC were looking into what are effectively Salary Sacrifice Pension Payments? The pension regulations were not intended to save employer's and employee's NI - only tax.

PurpleMoonlight

22,362 posts

158 months

Friday 8th July 2016
quotequote all
Eric Mc said:
I thought HMRC were looking into what are effectively Salary Sacrifice Pension Payments? The pension regulations were not intended to save employer's and employee's NI - only tax.
They never had a big issue until some many other things became attached to income and it started being used on mass.

There used to be formal HMRC guidance how to set it up but I bet there isn't any more.

Interestingly, for the new tapered annual allowance assessment any salary sacrifice contributions are added back to 'income' where basic income is in excess of £110,000.