2 - HMRC Tax Regime: Contributions and allowances Flashcards
What is relevant UK earnings
4
Employment Income (Salary, wages)
Income derived from carrying exercise of trade
Income arising from patent rights and treated as erned income
General earnings from overseas crown employment- subject to UK tax
What is the max age for pension tax relief on contributions
75
Can you pay into someone elses pension for contribution
Yes but income will be based on members not person who is contributing
If income is not enough e.g. child (limited to £3,600 - no relevant earnings)
What is net pay?
Employee contribution is taken away before any tax.
They contribute “net” of tax. Before Tax. So they will reduce their income by the contribution.
So if they are higher rate tax bracket (40%) - they will save 40% tax.
What is relief of source method
Contributions are paid net of basic rate of tax.
Employee wants to make gross cont of £100. £80 is deduced of employee net pay (after tax and NICs) - then pension provider reclaims £20 (20% from HMRC).
If higher/additional - further 20% or 25%
What self-assessment how is additional relief calculated
Adding gross amount of contribution to employee basic rate and higher rate band.
How are contributions to personal/stakeholder pensions (including group arrangements) received
Relief at source method
What is the dates that tax have to be paid under self-assessment
31st January during current tax year - 50%
31st July following end of tax year (i.e. 31/07/2024 - on 2023/2024 tax year) - 50%
Balancing payment on 31st January following end of tax year (31/01/2025 - 2023/2024)
What are some benefits of Salary sacrifice
Employer may contribute NIC
Dont use as part of new pensions cheme - reduction in home pay less than amount in contribution
How is an employer contribution paid
Gross and alllowable as business expense - so relief against corporation tax/income tax
When is employer contribution spread over years for tax relief
Exceeds 210% of contribution paid in previous chargeable period
Amount of excess is and above 110% is £500,000 or more
What is spreading of tax relief
(Time periods)
500k-999k (2 accounting periods)
1mil -> 1.999 mil (3 accounting periods)
2mil + - 4 accounting periods
What is Annual allowance
£60k
What is MPAA
£10K
When is Pension Input period?
In line with Tax year
6th April -> 5th April
What elements are not included in pension input amount
Investment income/returns
Contributions paid by individual/ someone other than individual employer after individual reaches 75
What is a cash balance scheme
Mix of DB and DC scheme
- Promised lump-sum payment at specific age, they take PCLS and rest is providing income
How is Total Pension input of DB/Cash balance scheme calculated
- Value of member pension benefits calculated “Opening Pension input value”
- Opening pension input value multiplied by 16
- If including lump sum in addition to pension. Ignore Lump Sum in multiplying process - Then mulitply by increase in CPI for Sept before Tax year
- Closing pension input value is then calculated
- Multiply Closing pension input value by 16
- Difference between two figures is total pension input
Who does the taper allowance affect
Threshold income (Excluding pension contributions) over £200,000
Adjusted income (inclding employer/employee cont) over £260k
Annual allowance is reduced by £1 for every £2 of adjusted income above £260k
Max reduction is £50k so everyone should have min of £10k annual allowance
How is threshold income calculated
Gross Taxable Income
Less
Gross member cont (net pay/relief at source or paid by third party - not employer)
plus
Income givern up via salary exchange or flexible remuneration after 08/07/2015
Less
Tax lump sum death benefits receive
If greater than 200k then calculate adjusted income
If not - no need to calculate adjusted income
