How should income tax be calculated?

[Andy Burns]

Pensions are tax free on the way in, not the way out.

[Andy Burns]

He didn't say tax free, just that you shouldn't need to fill in an SA form, unless it's so generous it pushes you into higher tax bands

[R.G. Bargy]

See my earlier responses to the two posters making the same point.

[John Rumm]

The contributions might be, but the income from it once you start drawing it is not.

[R.G. Bargy]

Quite.

[bert]

Tax allowances very rarely change during a tax year and if they do the PAYE system automatically adjusts to compensate. Also if they change you will receive notification off a change to your tax code. Without knowing the details of your income and types of income it would only be guessing to try to explain any discrepancies.

[bert]

PAYE calculates your monthly tax on a rolling basis. So sub £1 amounts drop off until eventually the system catches up and rounds it to another full pound and taker off an extra 20p

[bert]

Strictly speaking directors are required to complete self assessment regardless of salary. Glad to see a bit of common sense has prevailed.

[bert]

It isn't. Your pension provider will be given your tax code and deduct tax at source. As and when the OP reaches state pension age his tax code will be amended to take that into account and he will pay more tax on his company pension.

[bert]

They are. One of the contentious issue is that this concession is worth more to someone on higher rates of tax.

[bert]

In message , Andrew Gabriel writes

On the form they ask if you want any modest over/underpayment dealt with now or carried over into your tax code for next year. (I forget the limit)

[R.G. Bargy]

So the sub-£1 fiddlings are not discarded from the rolling totals of earnings and tax, just from the monthly calculation?

Hmmm. I wonder... could this arcane process date back to the days of £-s-d? Working in pounds only would have saved lots of time avoiding fiddly calculations on abacuses, calculators, or even ancient steaming computers with add times in the millisecond range. With decimal currency and modern computers, it'd be quicker to do exact calculations anyway.

BTW I've tried various ways of calculating the monthly values along the lines you suggest, which yielded 20p differences between months, the sequence varying depending on when the pence are dropped/added. However I've yet to match the actual sequence used.

[R.G. Bargy]

Not all contentious IMO, higher-rate taxpayers deserve higher pensions.

[djc]

Over thirty years ago when I worked on payroll systems there was a big fat manual issued by IR that described exactly how the calculations were to be made, down to how to deal with rounding errors to the penny. I assume that still applies though packaged software must have reduced the number of people having to work through those specifications these days.

The monthly PAYE caculations assume that your pay and allowances will be evenly divided over the whole year, so only the end-year figure is final and accurate.

[bert]

It's not a question of the size of their pension it's about he value of the tax concession on their contributions. Don't confuse this with SERPS etc which are all due to disappear eventually.

The argument goes like this.

If a basic rate tax payer puts a pound into their pension fund it actually cost them 80p If a 40p rate tax payer does the same thing it costs them only 60p.

Some think they should be the same. That would also mean that a low paid non-tax payer should actually get a tax credit of 20p if they put a £1 into a pension fund.

[Fredxx]

I find the idea of giving tax relief at the basic rate quite amusing. All that will happen if that the employee will make no pension contribution with the employer paying directly into the fund instead. This then also saving the NI the employer and employee would have also paid.

So it'll be win-win for employee and employer and a further loss for the government.

Simples.

[Andy Burns]

Didn't they end in April?