Income Tax, Gift Aid and Pension check
Discussion
Hi all,
Having a bit of a senior moment and wanted someone to look over my workings - think i have got it right (he says)!
If i earn £55,000, based on the 2020/21 tax rates only (ignoring NI). The Tax should be as follows
£12,500 at 0% = £0
£37,500 at 20% = £7,500
£5,000 at 40% = £2,000
Total Tax due = £9,500
Taking the same scenario above, but now taking into account i make a Pension payment of £1,500 (so £1,875 gross) and Gift Aid payments of £2,000 (£2,500 gross) - because of the tax reliefs available on these payments due to being a higher rate tax payer, would the calculation be as follows?
£12,500 at 0% = £0
£37,500 at 20% = £7,500
£5,000 at 40% = £2,000
£1,875 at 20% = -£375 (pension relief)
£2,500 at 20% = -£500 (gift aid relief)
Total Tax due = £8,625
Is that correct or have i fluffed up the calc?
Having a bit of a senior moment and wanted someone to look over my workings - think i have got it right (he says)!
If i earn £55,000, based on the 2020/21 tax rates only (ignoring NI). The Tax should be as follows
£12,500 at 0% = £0
£37,500 at 20% = £7,500
£5,000 at 40% = £2,000
Total Tax due = £9,500
Taking the same scenario above, but now taking into account i make a Pension payment of £1,500 (so £1,875 gross) and Gift Aid payments of £2,000 (£2,500 gross) - because of the tax reliefs available on these payments due to being a higher rate tax payer, would the calculation be as follows?
£12,500 at 0% = £0
£37,500 at 20% = £7,500
£5,000 at 40% = £2,000
£1,875 at 20% = -£375 (pension relief)
£2,500 at 20% = -£500 (gift aid relief)
Total Tax due = £8,625
Is that correct or have i fluffed up the calc?
Hussein-z3ksd said:
PM3 said:
HUH ?? you don't get the benefit of the gift aid surely ? It's the charity that get the effective tax paid , not you .
If you're a higher rate tax payer i think you get the difference back for GA payments (40% - 20% = 20% off) unless im mistaken.PM3 said:
Iwas a higher rate payer for years( until early retired ) and have filled out many a form for gift aid ....and never had a kickback , but of course all that means nothing and you could well be right !
If im not mistaken, to get the relief you need to call HMRC and ask them to amend or it is done on your Self Assessment. Again not an expert so happy to be corrected.....well, I checked the HMRC website out of curiosity ...and indeed it appears to be so . Either via self assessment or contact them to adjust your tax code, I stand corrected
https://www.gov.uk/donating-to-charity/gift-aid
https://www.gov.uk/donating-to-charity/gift-aid
Hussein-z3ksd said:
Is that correct
Yes!Your opportunity to claim (via Self Assessment or over the phone) is entirely independent of whatever the charity or your pension provider does but on the assumption that everyone claims what they are entitled to...
You need to shell out £800 to ensure that the charity/your pension receives £1,000 but you will (eventually) get £200 back (via your tax code) so at the end of the day, it will have only cost you £600 to fund that £1,000 charitable donation/pension input (equivalent to a full 40% of tax relief).
Yep - as a higher rate taxpayer you pay £800 in gift aid donations or as pension Contribution and:
1. Pension fund / charity claims £200 on basis that payment is net of basic rate relief so £1000 gross (this is independent et of whichever or not you are higher rate taxpayer) - and
2. You can then via self assessment claim higher rate relief on difference between 20% and 40% (you have already had the 20% relief by paying net of basic rate tax) so getting £200 back personally
1. Pension fund / charity claims £200 on basis that payment is net of basic rate relief so £1000 gross (this is independent et of whichever or not you are higher rate taxpayer) - and
2. You can then via self assessment claim higher rate relief on difference between 20% and 40% (you have already had the 20% relief by paying net of basic rate tax) so getting £200 back personally
The tax relief on gift aid donations, is received by increasing your basic rate band by the gross contribution, so in your example the basic rate band is increased by £2,500 to £40,000.
The same applies to the pension contribution, the basic rate band is increased by the gross contribution so £1,875 in your example giving you a basic rate band to £41,875.
You would end up with
£12,500 at 0% = 0
£41,875 at 20% = £8,375
£625 at 40% = £250
Total tax = £8,625
So your calculation is correct.
The same applies to the pension contribution, the basic rate band is increased by the gross contribution so £1,875 in your example giving you a basic rate band to £41,875.
You would end up with
£12,500 at 0% = 0
£41,875 at 20% = £8,375
£625 at 40% = £250
Total tax = £8,625
So your calculation is correct.
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