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Partnership and Matching - Tax Reduction

14 Sep 2018, 08:10

The Personal Tax Allowance for income tax purposes is currently £11,850, but most posties should also get the £120 cleaning allowance, making that up to £11,970.
So assuming you're employed for RM for all 52 weeks of a financial year, your weekly allowance would be effectively be £230.19.
Anything earned over that amount is taxed at 20% until you earn over £46,350 which is when you start paying tax at 40% (and anything over £150,000 is taxed at 45%).

National Insurance is worked out separately!
There are no NIC's to pay on the first £162 you earn per week. It's 12% from £162.01 to £892 and 2% on anything over that.

So in practice, total taxation for most posties would be:

Earnings up to £162 are totally tax free.
From £162.01 - £230.19 gets a 12% hit.
From £230.19 - £892 it's a 32% reduction.
Anything earned over £892 and it goes down to 22%.

However, payments into the Partnership & Matching scheme aren't included in the amount of your pay that's assessed for tax and NI purposes. So by paying into it, you're decreasing the amount of tax and NIC's you pay.

For example, if you're putting £20 gross per week into P&M, you won't pay any tax or NIC's on that £20. Which will save you £4 income tax and £2.40 NIC's. So the net cost to you will only be £13.60.

The same can also be said for your RM pension contributions!

You might find this article on SIP's interesting.

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