This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

How to calculate net income

Therixonator
Posts: 3
Joined: Sat Mar 09, 2019 10:23 am

How to calculate net income

Postby Therixonator » Sat Mar 09, 2019 10:34 am

Hello,

I'm trying to figure out whether my net income is above the threshold for having my tax free allowance reduced by £1 for every £2 above the limit. I think this is 100k for 2018/19. If I am over then amount then perhaps I can put a lump sum in my SIPP to avoid this.

All my income is via PAYE. I buy £124 of child care vouchers per month and I pay £550 out of my bank account into my SIPP every month.

Is there a simple formula for working out the net income number? I've tried various websites but they are either not clear about how to treat SIPP payments, or don't have options for it at all.

Also is net income and taxable income the same number or different?

Many thanks in advance,
James

D&C
Posts: 61
Joined: Thu Dec 22, 2016 10:04 pm

Re: How to calculate net income

Postby D&C » Sat Mar 09, 2019 10:10 pm

If the SIPP payment is to a "relief at source" scheme then the pension company will add basic rate tax relief of £137.50 making £687.50 in your pension fund

The £687.50 can be deducted when calculating your adjusted net income (which determines your Personal Allowance).

It does not reduce your taxable income.

But it does increase the amount of basic rate tax payable which can in turn reduce the amount of higher rate tax payable.

Therixonator
Posts: 3
Joined: Sat Mar 09, 2019 10:23 am

Re: How to calculate net income

Postby Therixonator » Tue Mar 12, 2019 7:22 pm

Thanks for taking the time to respond to me D&C. Would you mind checking my maths and assumptions below to see if I'm understanding everything here.

Assumptions
Annual Earnings all through PAYE
Tax code is 1185L
Tax year is 2018-19
Pension Payments are to a SIPP, and are auto grossed up by the Scheme Provider
All numbers are annual

Inputs
Earnings = £125000
Pension Payments Gross = £9000
Childcare Vouchers Gross = £1488

Workings
Net income = 125000 - 9000 - 1488 = 114512

As it stands, tax free allowance would reduce by (114,512 - 100,000) / 2 = 7256.

Annual allowance becomes 11850 - 7256 = 4594

That effectively means there is £4594 additional being taxed at 40%

To avoid this, you'd need to pay 14512 * 0.8 = 11609 as a one off payment into the SIPP prior to 6th April.

Many thanks in advance,
James

Therixonator
Posts: 3
Joined: Sat Mar 09, 2019 10:23 am

Re: How to calculate net income

Postby Therixonator » Wed Mar 20, 2019 8:47 am

Is anyone able to check my maths and assumptions above please?


Return to “Income Tax”