Quick Tax Question

[themistry]

Hi all,

a very quick tax question which im a little fluffy on,

Salary £15k + Dividends £26k = Total £41k.

Rounding the higher tax band to £40k, other than paying a higher rate of tax on the £1k, are there any financial implications to be aware of?

Further, from a pension perspective.

If I own a personal pension scheme and have £1000 in it, now that im a higher tax payer, would the government add in an extra 40% (rounded) to this instead of the typical 22%?

Appreciate any responses,


Kind regards
TM

[ASB]

- If you received 26k in dividends don't for get to gross them up by the associated tax credit for the purposes of tax. This is 10% of gross so the taxable divi is 28.8k.

- You don't actually pay higher rate tax as such, though the numbers probably work out the same (I can't be bothered to check). You pay 25% of the net dividend in this band (22.5% of the gross).

- Your income is 43.8k - 40k = 3.8k * 22.5 = 850 tax to pay

- You get extra pension relief if you claim it on your tax return, this is obviously limited to the amount of higher rate income you have.

- Whether or not you should be making the contributions personally or have the company make them gross is an often discussed point.

- There are a bunch of calculators out there you can plug your actual numbers in and get sensible results from (the IR's is quite good, create a new return whenever you want and it does all the sums. But don't submit it!)

[Lewis]

Hi all,

a very quick tax question which im a little fluffy on,

Salary £15k + Dividends £26k = Total £41k.

Rounding the higher tax band to £40k, other than paying a higher rate of tax on the £1k, are there any financial implications to be aware of?

Further, from a pension perspective.

If I own a personal pension scheme and have £1000 in it, now that im a higher tax payer, would the government add in an extra 40% (rounded) to this instead of the typical 22%?

Appreciate any responses,


Kind regards
TM

I think as far as I can remember from my self assesment calculation form that the 1K penson comes off the calculation before tax is paid. Bringing the £41K in your example to £40K. Hence you would have no extra tax to pay and you have effectively gained 40% tax relief on the pension (but it's not in your pension pot). Remember not to confuse Gross and Net dividend.

[themistry]

Chaps,

many thanks on your responses.

I think there may be a little confusion, the pension question was a seperate issue.

I.e. a totally different £1000 paid directly by the business into my pension. Not paid out of my salary.

Thanks for all the information,
TM