Adjusted Net Income - Pension Contributions and Tax
Discussion
Due to a one-off bonus, I'm trying to work out my adjusted net income in order to ensure my pension contributions have brought me under the 100k tax threshold (60% through loss of personal allowance).
My pension payments are applied to the pension several weeks after the end of the month. So the payment from end of March 2021 salary is paid into my pension around 21st April 2021. Does that mean it I can't include it in my contributions for the tax year 2020/21 and should include the March 2020 payment applied 21st April 2020 instead? I've Googled it and read the HMRC guidance and I'm no clearer.
Also, we switched from pension contributions from net pay to salary sacrifice in February. I presume I still need to complete self assessment if the total gross salary on my payslip is over 100k?
Finally, I still don't understand why salary sacrifice contributions are deducted gross (pre-tax) where as grossed-up payments paid from net salary are only deducted after basic rate tax relief (i.e. you cannot deduct the higher rate tax you claim back from HMRC later).
Comments welcome, cheers!
My pension payments are applied to the pension several weeks after the end of the month. So the payment from end of March 2021 salary is paid into my pension around 21st April 2021. Does that mean it I can't include it in my contributions for the tax year 2020/21 and should include the March 2020 payment applied 21st April 2020 instead? I've Googled it and read the HMRC guidance and I'm no clearer.
Also, we switched from pension contributions from net pay to salary sacrifice in February. I presume I still need to complete self assessment if the total gross salary on my payslip is over 100k?
Finally, I still don't understand why salary sacrifice contributions are deducted gross (pre-tax) where as grossed-up payments paid from net salary are only deducted after basic rate tax relief (i.e. you cannot deduct the higher rate tax you claim back from HMRC later).
Comments welcome, cheers!
If your workplace pension was previously on a net-pay basis and more recently moved to sacrifice, you should already automatically get all the tax relief that you are entitled to based on your income from employment regardless of any timing issues due to your employer not paying monies over for a few weeks.
If you need to make a last minute personal pension contribution to reduce your taxable income from all sources down below £100k, you should be able to arrange that now/before the end of the tax year.
If you subsequently call HRMC and give them the details, they will arrange the higher-rate relief for you (which will come back to you through the payroll and via your tax code).
They may not force you into the full self-assessment rigmarole, but that's their call.
The timing of the payments made by your employer could mean that your March payroll pension contributions will appear as 'Pension Input' in the 2021/22 tax year however, you will have already secured full tax relief as your March payroll is relevant here.
The only snag with delays to Pension Input like this is that it could restrict you in terms of what you can pay in next year (if some of your 2021/22 headroom is already used up by a delayed pension input that is in respect of 2020/21).
If you need to make a last minute personal pension contribution to reduce your taxable income from all sources down below £100k, you should be able to arrange that now/before the end of the tax year.
If you subsequently call HRMC and give them the details, they will arrange the higher-rate relief for you (which will come back to you through the payroll and via your tax code).
They may not force you into the full self-assessment rigmarole, but that's their call.
The timing of the payments made by your employer could mean that your March payroll pension contributions will appear as 'Pension Input' in the 2021/22 tax year however, you will have already secured full tax relief as your March payroll is relevant here.
The only snag with delays to Pension Input like this is that it could restrict you in terms of what you can pay in next year (if some of your 2021/22 headroom is already used up by a delayed pension input that is in respect of 2020/21).
Mogul said:
The timing of the payments made by your employer could mean that your March payroll pension contributions will appear as 'Pension Input' in the 2021/22 tax year...
Thanks for the info. It's this bit that I can't work out as the amount I need to pay into my pension as a manual payment to duck below the 100k mark depends on deducting existing pension payments from my total salary. If I don't know whether the March sacrifice payment will be counted for the 2020/21 year, I can't accurately gauge the additional manual payment.The March 2021 salary sacrifice payment was considerably higher than the March 2020 payment (automatic deduction from net salary) which is why it makes a significant difference.
I think I've got it correct but I guess it's a case of waiting to see what comes out of the wash when HMRC finishes its processing.
Your March salary sacrifice payment will have passed through the payroll and therefore IT WILL have an immediate impact on what appears on your P60 so you don't need to worry about that bit.
The fact that your employer will be making a pension contribution along with your sacrifice does not increase the potential tax relief that you are entitled to.
It matters not when the associated cash (i.e. the part that you have personally sacrificed plus your employer's contribution) actually hits your pension plan.
[Let's ignore for a moment any possibility that you might be exposed to an Annual Allowance 'tax charge' if your Pension Input is ultimately more than your Annual Allowance incl. Carry Forward...]
Basically; your Taxable Income in the period is one thing.
i.e. whatever you see on your P60 plus whatever other sources of (potentially) taxable income you might have: Savings income, Investment income, property income etc.
Your Pension Input (covering the same period) is another..
The trouble with keeping track of your Pension Input is that this figure can come from multiple sources/pension plans. i.e. your current workplace scheme plus multiple other SIPP accounts with multiple providers etc.
Sadly, you can't push a button and get an overview of the total (and neither can HMRC, as far as I know).
You just have to follow the self-assessment rules like everyone else and that means you must keep good records of all of the activity in each of your plans.
In summary. If your employer cannot give you a P60 today, your P12 payslip might give you the YTD numbers (or you can add up 12 payslips to work this out).
If you believe that your taxable income from employment (plus any other sources of taxable income as above) places you over £100k, then you are in the 60% trap and you can make a SIPP contribution now to address this.
i.e. if you transfer £4k to a SIPP today, you can tell HMRC that you have made a £4k net/£5k (including the basic rate relief) pension contribution, they will accept this.
As and when your 'considerably higher' March payroll pension contribution actually appears in your plan, you can consider it as either a 2020/21 or a 2021/22 Pension Input.
The fact that your employer will be making a pension contribution along with your sacrifice does not increase the potential tax relief that you are entitled to.
It matters not when the associated cash (i.e. the part that you have personally sacrificed plus your employer's contribution) actually hits your pension plan.
[Let's ignore for a moment any possibility that you might be exposed to an Annual Allowance 'tax charge' if your Pension Input is ultimately more than your Annual Allowance incl. Carry Forward...]
Basically; your Taxable Income in the period is one thing.
i.e. whatever you see on your P60 plus whatever other sources of (potentially) taxable income you might have: Savings income, Investment income, property income etc.
Your Pension Input (covering the same period) is another..
The trouble with keeping track of your Pension Input is that this figure can come from multiple sources/pension plans. i.e. your current workplace scheme plus multiple other SIPP accounts with multiple providers etc.
Sadly, you can't push a button and get an overview of the total (and neither can HMRC, as far as I know).
You just have to follow the self-assessment rules like everyone else and that means you must keep good records of all of the activity in each of your plans.
In summary. If your employer cannot give you a P60 today, your P12 payslip might give you the YTD numbers (or you can add up 12 payslips to work this out).
If you believe that your taxable income from employment (plus any other sources of taxable income as above) places you over £100k, then you are in the 60% trap and you can make a SIPP contribution now to address this.
i.e. if you transfer £4k to a SIPP today, you can tell HMRC that you have made a £4k net/£5k (including the basic rate relief) pension contribution, they will accept this.
As and when your 'considerably higher' March payroll pension contribution actually appears in your plan, you can consider it as either a 2020/21 or a 2021/22 Pension Input.
I was in the same situation as OP and when I arranged a one off extra salary sacrifice for March payroll, I was told by the payroll people that the salary would be “lost” from my 2020/21 earnings (get under the £100k), but should be aware that the pension payment would not actually be made until the 2021/22 tax year and so count towards 2021/22 pension limit. As noted above, carryover rules means that’s not a huge issue in the grand scheme of things (for me at least).
Excellent, thanks guys. As the March sacrifice payment can be counted towards 2020/21, I didn't need to make an additional payment.
It was slightly confusing as the pension provider report for payments in the tax year didn't add up. Not confident in accuracy of pension section of payslip for P12, due to the mid-year transition from net pension contribution to salary sacrifice.
Much appreciated!
It was slightly confusing as the pension provider report for payments in the tax year didn't add up. Not confident in accuracy of pension section of payslip for P12, due to the mid-year transition from net pension contribution to salary sacrifice.
Much appreciated!
Edited by ecs0set on Thursday 1st April 10:29
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