Taxable income sanity check
Discussion
Hi
I did speak to HMRC and they were super helpful but I forgot to ask this question so I thought I'd try here.
Say someone is on 70k and they want to get their taxable income down to 50k. They salary sacrifice 10k right off the bat. They then put 6k from net earnings into a SIPP. All within current FY if that matters. How does the 6k net sipp contribution affect taxable income after they do a tax return?
Is it safe to deduct 10k (6k+relief) from the post sacrificed 60k earnings? Or not as simple as that?
Numbers changed to protect the innocent btw, this is just an example to figure out how net contribution does or does not affect taxable income.
Thanks
Mike
I did speak to HMRC and they were super helpful but I forgot to ask this question so I thought I'd try here.
Say someone is on 70k and they want to get their taxable income down to 50k. They salary sacrifice 10k right off the bat. They then put 6k from net earnings into a SIPP. All within current FY if that matters. How does the 6k net sipp contribution affect taxable income after they do a tax return?
Is it safe to deduct 10k (6k+relief) from the post sacrificed 60k earnings? Or not as simple as that?
Numbers changed to protect the innocent btw, this is just an example to figure out how net contribution does or does not affect taxable income.
Thanks
Mike
If your Gross Salary is 70,000 then the salary sacrifice brings the gross down to 60,000.
For tax year 2018/19, the personal tax allowance is 11,850. When you take that off the 60,000, that brings your taxable income down to 48,150.
So, without any pension contributions your taxable income is already under 50,000.
For tax year 2018/19, the personal tax allowance is 11,850. When you take that off the 60,000, that brings your taxable income down to 48,150.
So, without any pension contributions your taxable income is already under 50,000.
bmwmike said:
Right thanks Eric. I forgot about that.
But just for my sanity check if the net 6k was made does that reduce my taxable income further and assuming yes, is that by the 6k or by the 6k+relief?
Thank you.
Nope. HMRC adds the basic rate tax relief due on the pension to the pension (they don't refund any tax to you). If you have any pension tax relief due at the higher rate, that part of the relief WILL be refunded to you.But just for my sanity check if the net 6k was made does that reduce my taxable income further and assuming yes, is that by the 6k or by the 6k+relief?
Thank you.
bmwmike said:
Ok thanks. So the higher rate part of the relief could be used to reduce my taxable income for this year (same year as I made the sipp contribution)?
Maths and tax not my strong point, thanks for the help.
It doesn't reduce your taxable income. It generates an actual tax refund.Maths and tax not my strong point, thanks for the help.
I can over elaborate at times. Years ago one of the partners in a firm I worked for told me I needed to shorten my letters to clients and I took that on board.
It's all well and good telling a client everything they need to know but most of the time their eyes glaze over before they've got past paragraph one and all of the time, if they manage to get to the end of the message, they'll end up confused.
It's all well and good telling a client everything they need to know but most of the time their eyes glaze over before they've got past paragraph one and all of the time, if they manage to get to the end of the message, they'll end up confused.
BaronMcLaren said:
I’m a higher rate tax payer, have been for a while so it’s quite embarrassing to have to ask for advice here as I should probably have done something about it years ago.
HMRC requested I complete a tax return from the year 2014–15, at the same time I started making 3% contributions to a company pension. This matched the 3% from the company and represented a jump from the very small amount I was auto enrolled with.
Having had only minimal assistance with my tax return that year, and having completed further returns in 2015-16 & 2016-17 with 2017-18 due shortly I fear I’ve missed the opportunity to put this one right.
Without posting too much information am I entitled to claim 20%, if so should I look to discuss it with HMRC first or try and correct it in the 2017-18 return?
Any help, suggestion or mild-abuse welcome.
The last 3 tax years would, I imagine, not be a problem. 2014/2015 might be different (I don't know).HMRC requested I complete a tax return from the year 2014–15, at the same time I started making 3% contributions to a company pension. This matched the 3% from the company and represented a jump from the very small amount I was auto enrolled with.
Having had only minimal assistance with my tax return that year, and having completed further returns in 2015-16 & 2016-17 with 2017-18 due shortly I fear I’ve missed the opportunity to put this one right.
Without posting too much information am I entitled to claim 20%, if so should I look to discuss it with HMRC first or try and correct it in the 2017-18 return?
Any help, suggestion or mild-abuse welcome.
I can't see how you shouldn't remain entitled to a previous tax rebate due though. If HMRC can get tax owed to them from previous years surely they must have to refund tax owed to you in the same way...?
I think Eric is your best bet for an accurate answer on this one.
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