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Hello,
Sorry I posted this on ask a tutor but not had a response yet, I know I’m being inpatient but was hoping this board got more traffic.
If Bob pays £5000, into an occupational pension scheme and £5000 into a personal pension scheme, and earns £40,000, is his ANI £30,000 or £35,000? And do the tax bands get lifted by £5000 or £10,000? Getting a bit muddled with this.
Thanks for the help!
Izzy
Hi Izzy,
It’s been a while since I sat tax but if I remember correctly it all depends whether the contributions are made gross or net of tax. The personal contribution will definitely have been made net of tax and so will be used to compute adjusted net income. It is the occupational contribution that would depend on how the employer operated their payroll. If the contribution was made before PAYE was operated (net pay arrangement) then tax relief has already been claimed and the amount would already not be included as taxable income, so no adjustment is needed.
Hope this helps.
Chris
Hi again Izzy,
Just had a look at my study text cos something didn’t seem quite right with what I told you. It seems the adjusted net income would include the occupational contribution and the personal contribution needs to grossed up to 6,250 (5,000 x 1.25) meaning the adjusted net income would be 28,750. The basic rate band would be extended by the gross payment of 6,250, but not by the 5,000 occupational contribution as this has already reduced the net taxable income and so received tax relief.
Sorry if I’ve confused you further
Chris
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