Pension contribution affect on annual wages and tax

[TheAngryDog]

Hi all,

Does making a monthly pension contribution, taken from wages at source, change the point at which someone would start paying 40% tax on their wages?

Whenever I use a tax app, someone earning £52925.27, making a 5% monthly contribution to their pension, would start to pay tax at 40% rate above this, based on 22/23 tax calculations.

Under normal circumstances a person who makes no contributions would start paying 40% tax above £50270.

Is my understanding correct?

Thanks.

[SpunkyGlory]

You are sort of correct. The 40% tax band kicks in at the same level of taxable income, which is the important bit here.

In your first example, the 5% pension contribution reduces the taxable income to in line with the 40% threshold, hence why no tax is paid at that level.

[TheAngryDog]

SpunkyGlory said:

You are sort of correct. The 40% tax band kicks in at the same level of taxable income, which is the important bit here.

In your first example, the 5% pension contribution reduces the taxable income to in line with the 40% threshold, hence why no tax is paid at that level.

Thanks for your reply!

How would a bonus affect that in the first example?

I'm just trying to work out if I have paid too much tax this year.

Thank you.

[Condi]

TheAngryDog said:

Thanks for your reply!

How would a bonus affect that in the first example?

I'm just trying to work out if I have paid too much tax this year.

Thank you.

The tax man will work it out at the end of the year, but the bonus is just counted as income. Many companies let you chose whether to take it home or pay it directly into your pension.

[okgo]

Condi said:

The tax man will work it out at the end of the year, but the bonus is just counted as income. Many companies let you chose whether to take it home or pay it directly into your pension.

Do they?

I've worked in sales for 15 years and no company has ever offered anything other than to take it as salary.

[Volare]

My company offer it as salary sacrifice into my pension. Have never done it until now.

Edited by Volare on Thursday 30th March 12:21

[The Ferret]

okgo said:

Do they?

I've worked in sales for 15 years and no company has ever offered anything other than to take it as salary.

Have you asked?

Everywhere I've worked has been happy to, but none have actually advertised it.

If your lucky, they'll even throw in the employers NI saving.

[okgo]

The Ferret said:

okgo said:

Do they?

I've worked in sales for 15 years and no company has ever offered anything other than to take it as salary.

Have you asked?

Everywhere I've worked has been happy to, but none have actually advertised it.

If your lucky, they'll even throw in the employers NI saving.

Not really a factor for me these days but I just wanted to sounded out that it isn’t often made a point of as you say.

[Jasey_]

this calculator allows you to put in salary sacrifice to see the effect of various values.

https://www.thesalarycalculator.co.uk/salary.php


Even allows you to put in if you are unfortunate enough to have to pay the extra "SNP" tax in Scotland.

And I asked my Payroll to pay my bonus into my pension and it was just a case of emailing them and them saying fine.

[VR99]

The Ferret said:

okgo said:

Do they?

I've worked in sales for 15 years and no company has ever offered anything other than to take it as salary.

Have you asked?

Everywhere I've worked has been happy to, but none have actually advertised it.

If your lucky, they'll even throw in the employers NI saving.

It's fairly common in the big banks and some of the larger financial institutions along with reasonably good pension employer contributions (where 'salary sacrifice' is used anyway) though I will add my previous employer is becoming a lot tighter for newer employees)

[supersport]

My employer offers salary sacrifice of bonus into the pension. You can select a % for each bonus month. Also actively reminds us come bonus month.

Given that it’s a monthly thing I assume the sales people get monthly bonus.

It’s only come all no in the last few years. Not a bank or financial institution either.

[okgo]

I mean obviously I can open a ticket and say pay x in. But it isn’t like it’s advertised or pushed.

[deja.vu]

okgo said:

Condi said:

The tax man will work it out at the end of the year, but the bonus is just counted as income. Many companies let you chose whether to take it home or pay it directly into your pension.

Do they?

I've worked in sales for 15 years and no company has ever offered anything other than to take it as salary.

You don’t get a bonus, you get paid comission

Just saying