£100K funded hours - pension calculations

[TerroristToddler]

I will earn over £100K this financial year, and plan to put a good chunk into my pension to stay under £100K and thus, avoid the 60% tax trap and the loss of tax free childcare and funded hours.

When confirming eligibility, given my previous HMRC PAYE records will suggest I earn over £100K should I expect them to check with me in some way that I'm correct in saying I'll earn under £100K? If so, I guess simply confirming to them that I will contribute to my pension is sufficient? Anyone have any experience of this?

Also, I will need to make extra pension contributions on top of the usual monthly sum I salary sacrifice to my workplace pension. This is because I'll get a bonus and need to put it all in the pension to stay under £100K. The bonus cannot be salary sacrificed directly, like my usual workplace pension contributions. As such, plan is to receive bonus (net, as employer will have paid tax at source) and then put it in pension manually. As it'll be the net figure, am I right to think that I just put the net amount in the pension and then the pension reliefs will be added to give the 'grossed up' number?

e.g. Earnings are £99,999 and bonus is £10K gross. From the bonus, I'm paid £5K of it as taxed at source. Would I need to put just the £5K in pension to equal £10K reduction (as grossed up, with pension reliefs applied it would = £10K) to adjusted net income?

Any other tips on the mechanics of this is welcome!

PS - Sorry if its a stupid question - I think I've turned my brain to mush looking at pension rules on HMRC and now questioning if 'pension' is even a word or is it just something I made up!

Why can’t you salary sacrifice your bonus, every where I’ve ever worked you have been able to do this.

They may just call you to confirm and ask what your plans are. I always salary sacrifice to bring my salary right under the threshold. They have contacted me twice over the years to ask me what my plans regarding my earning are. I just tell them I am upping my pension contributions again and that is that.

Eugh... don't get me started! I've been moaning to HR about this for ages. We have salary sacrifice for standard monthly pension contributions (which we can juggle up/down when we need to) but for the bonus itself the salary sacrifice option doesn't exist at our place (it was very much a 'computer says no' answer, each time I've raised this).

Colleagues say it's not an issue and they just manually send an extra chunk to their pension and then claim tax reliefs back - but in my mind its a lot of faff, and salary sacrifice option would be so much easier!

Pension rules can be incredibly confusing! Have you spoken with a financial adviser as that would be your safest bet?

I do work for an IFA (although I'm not an adviser) which is how I stumbled across your post, and this is a pretty common issue. There are definitely ways you can to reduce your tax liability, an adviser would give you the exact answer for your situation.

With my pension, I get 25% tax relief on top of my net contribution. HMRC then adjust my tax code to account for the remaining tax relief, which just ends up back in your pocket. So, in this case, you’d need to make an £8k net contribution to get £10k gross (the remaining relief effectively becomes a partial refund on the net contribution).

i had this exact issue. On HMRC chilcare account I got. Message after application saying they needed more info on a call. When we spoke I explained that I’d be upping pension to land at £99500 net adjusted income - all good 😀

in example above, the whole £10k bonus needs to go into pension… if you took £5k, then net adjusted income would be £104999 and you’d get c.£2k (considering tax trap).

I usually overpay more each month to ensure still have a bonus lump

I earn over 100k and use pension contributions to bring it below 100k.

HMRC contacted me when I applied for childcare funding, and I explained what I did. That seemed to solve it.

My P60 then shows earnings under 100k which offers further proof.