Calculating AVC after bonus

[bdennehey]

Hi, first time poster.

I pay childcare vouchers and participate in a salary sacrifice program for pension. In addition to that I have private medical insurance which my tax code is adjusted for.

I would like to make an AVC this year following my bonus, and want to get to a very specific number in doing so. Question is, how do I calculate that?

I'm assuming my AVC calculation will be:

Salary sacrifice adjusted salary + bonus - childcare voucher payments - target gross salary. That bit is easy, however in viewing my government gateway tax prediction, they class the medical insurance as income, despite my tax code being adjusted to tax me as a BIK? In effect, they reflect my tax code reduction but also add on medical insurance as taxable income too, so the top line looks higher than it should be. This is confusing the hell out of me.

Can someone help me work out what my AVC calculation should actually look like?

B

[ben_power]

Hi,

Unfortunately it may be a little more complicated than you anticipate. The gross contribution to your AVC will also depend on all 'other' pension contributions made in this tax year. If you are a member of an occupational pension (which your AVC implies) then you will need to know exactly what your employer and you have already contributed along with factoring in what will be made before the tax year end on April 5th.

You have an annual allowance of £40,000 gross or 100% of earnings if less (which I suspect you are aware of). Your assumptions are correct but it sounds like the medical insurance is already accounted for by the BIK adjustment. I wouldn't reply on the government gateway for this info, it's a system not an advice based service so errors are easily made.

I am a little confused by the comment about '-target gross salary'?

It might be worth noting that should your earnings including bonus be high enough you are able to carry forward 3 previous tax years of annual allowances, again, specific calculation relating to 'all' pension contributions need to be factored in. This will allow you to benefit from unused allowances. By way of example. If you made no contributions last year then you would in theory have an unused allowance of £40,000. You could then make a gross contribution in this tax year of £80,000 but only if you had at least £80,000 income in this tax year. It does not account for income in previous years.

You would be best advised to contact your HR department for specific info in 'all' pension contributions so the picture becomes clear.

I hope this helped.

[someone]

Sorry, I thought I had replied to this but obviously not.

Your problem with this question is that you ask for an exact calculation but there are so many unknowns and assumptions that anyone who tries to give you an exact answer will be doing you a disservice.

Basically:

1 Add up all your taxable income. Include any BIK but do not include salary sacrifice (this assumes you are not exceeding your maximum pension contrib - see 2) Remember to include things like bank interest.

e.g. If you get 1800pm plus a 200 salary sacrifice into your pension (so your non salary sacrifice salary would have been 2000) then use the 1800 figure. Subtract the gross amount of any pension contributions that were made without using salary sacrifice. Also deduct the gross amount of any gift aid donations - (remember that you can gift aid things like national trust membership - watch out if you have '+1' membership - only the personal element is eligible for gift aid. Some charities make this very clear - well done V&A, Others either don't mention it at all or make it very hard to find)

2 Add up all your pension contributions, including your employer contributions.

2 must not be greater than 1 (I'm not 100% sure whether employer contributions are included in the no greater than taxable income test, no doubt I'll be corrected if not). Also 2 must not exceed your annual allowance (40k plus any left over from the previous three years)


In your spreadsheet doing the above, adjust the amount of pension contributions and/or salary sacrifice so that 1 gives you the number you need.

The difference between what you will pay and what you need to pay is the number you're looking for.


AFAIAA, pension contributions must be made in the correct tax year - they cannot be carried back (unlike gift aid), so watch out if you're using salary sacrifice on your March pay that it will be credited before April 6th. (I got bitten by this in the mini-tax-year a few years ago where I assumed my pension would be credited in the earlier mini-year and ended up contributing too much in the second mini-year and only got the pension statement once it was too late to do anything about it)


Finally - if you realise that you're still a few pounds over your magic income when you get your P60 and/or P11D you can use gift aid carry back to 'fix' the previous year's income. But you MUST get this right the first time you submit a tax return, you cannot alter it later - and you must request it before Jan 31st - so you have to do your tax return on time - which might mean asking HMRC to send you one early enough that you can do it by Jan 31st.



(I have never had to worry about HICB - I hate children! - so there may be nuances I'm not aware of - e.g. I'm guessing that the gift aid deduction applies even though it doesn't for adjusted income calculation for pension tapering)

N.B. Your tax code is completely irrelevant in all of this - its purpose is so HMRC can try and collect exactly the right tax without having to bill or refund at the end of the year. If you make a last minute pension contribution then this probably won't work and you'll probably be due a refund which you will have to contact HMRC about.