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Where Taxpayers and Advisers Meet

Help with tax calculation please

LWBLA
Posts:11
Joined:Sat Jun 16, 2012 11:17 am
Re: Help with tax calculation please

Postby LWBLA » Sat Jan 18, 2020 5:59 pm

Oh dear! I think this may be beyond me. Let me try one more question. I know that I have a shortfall between my income and my expenditure of £4049. That shortfall has to come out of my personal pension. I know that I will have to pay tax on 75% of the amount and can have 25% tax free. If I need to end up with a net amount of £4049, how can I calculate what the gross amount should be?

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: Help with tax calculation please

Postby robbob » Sun Jan 19, 2020 10:59 am

Oh dear! I think this may be beyond me.
lol

i thought this
z = x + y - (x * 0.15) + ((12,500-y) * .2)
was less complicated than your version
z = (((x X 0.75) + y)) - 12500) X 0.2 + (x X 0.25)
Anyway i was in a bit of a rush to go to the pub yesterday so lets do a quick proof check of the formula

Ok lets use random amounts (honest gov its not a fix - try your own)
x = £24,470.59 - main pension
y = 8000 state pension
personal allowance = 14000

so z =
24470.59+8000 - (24770.59*.15) + ((14000-8000) *.2)

+24470.59+8000-3670.59 + 1200 = 30,000 - tick part 1
Proof of the pudding tax comp

24470.59 pension
6117.65 tax free
18352.94 taxable
add 8000 state pension
26352.94 taxable
14000 personal allowance
12352.94 taxed at 20% = 2470.59

net income =
24470.59 private pension + 8000 state pension - less 2470.59 tax paid = £30,000 bingo

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: Help with tax calculation please

Postby robbob » Sun Jan 19, 2020 11:07 am

Let me try one more question. I know that I have a shortfall between my income and my expenditure of £4049. That shortfall has to come out of my personal pension. I know that I will have to pay tax on 75% of the amount and can have 25% tax free. If I need to end up with a net amount of £4049, how can I calculate what the gross amount should be?
ahhh - that would have saved some time if you had asked that question first !!

4049 / .85

slightly simply than z = x + y - (x * 0.15) + ((12,500-y) * .2) meeethinks!

or if you prefer 4049 * 1.176471

check time again
4049/.85 = 4763.53
25% tax free = 1190.88
taxable = 3572.65 * 20% = 714.53 tax

4763.53-714.53 = 4049 - bingo

Note - its actually as simple as 15% of your marginal income being taken as tax if you want to work back from gross !! - once your income exceeds the personal allowance level. This explain the slightly unexpected appearance of 15% in the longwinded formula.

I suspect my z = x + y - (x * 0.15) + ((12,500-y) * .2) formula is more complicated than it needed to be - so that's the challenge for anyone else to find a simpler version of that formula.

LWBLA
Posts:11
Joined:Sat Jun 16, 2012 11:17 am

Re: Help with tax calculation please

Postby LWBLA » Sun Jan 19, 2020 5:53 pm

Sorry for asking the more complicated question first. I think my brain was about to explode! Your formulas look fantastic. I don't think I would have got there on my own so thank you very much for your help.


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